Los Angles Proposal – Evaluation of Jail Population Alternatives
Transcript of Los Angles Proposal – Evaluation of Jail Population Alternatives
Nevada System
of Higher Education
Evaluation of the
NSHE
Funding Formula
submitted by:
May 2011
Table of Contents
Acknowledgements
Executive Summary
Chapter 1 Introduction
1.0 Background… ........................................................................................................................ 1-1
1.1 The Nevada System of Higher Education and the Funding Formula ..................................... 1-2
1.1.1 Instruction ..................................................................................................................... 1-6
1.1.2 Academic Support ......................................................................................................... 1-6
1.1.3 Student Services ............................................................................................................ 1-6
1.1.4 Institutional Support...................................................................................................... 1-7
1.1.5 Operation and Maintenance of Physical Plant .............................................................. 1-7
1.1.6 Other Components ........................................................................................................ 1-7
1.2 Perceptions of NSHE’s Funding Model ................................................................................. 1-7
1.2.1 Nevada’s Budget and the State of the State .................................................................. 1-8
1.2.2 Higher Education as a Driver of the Economy ............................................................. 1-9
1.2.3 Inequities in Funding .................................................................................................. 1-11
1.2.4 Inefficiencies in the NSHE ......................................................................................... 1-12
1.2.5 Complexity of the Formula ......................................................................................... 1-13
1.2.6 Support of the Local Higher Education Institution ..................................................... 1-13
Chapter 2 Funding Formula Use in Higher Education
2.0 Introduction and Overview ..................................................................................................... 2-1
2.1 Development of Funding Formulas ........................................................................................ 2-5
2.2 Economies of Scale and Scope ............................................................................................... 2-9
2.3 Guiding Principles in Formula/Guideline Usage.................................................................. 2-14
2.4 States’ or Systems’ Funding Formulas ................................................................................. 2-16
2.4.1 Funding Formulas for Two-Year Colleges ................................................................. 2-20
2.4.2 Formulas by NACUBO Classification ........................................................................ 2-20
2.4.2.1 Instruction ................................................................................................... 2-20
2.4.2.2 Research ...................................................................................................... 2-23
2.4.2.3 Public Service ............................................................................................. 2-24
2.4.2.4 Academic Support ....................................................................................... 2-24
2.4.2.5 Student Services .......................................................................................... 2-26
2.4.2.6 Institutional Support.................................................................................... 2-28
2.4.2.7 Operation and Maintenance of Physical Plan ............................................. 2-29
2.4.2.8 Scholarships and Fellowships ..................................................................... 2-30
2.4.2.9 Revenue Components ................................................................................. 2-31
2.5 Emerging Trends in Formula Design and Usage .................................................................. 2-32
2.6 The New Wave of Funding Formulas in 2010 ..................................................................... 2-33
2.6.1 Indiana ........................................................................................................................ 2-37
2.6.2 Louisiana ..................................................................................................................... 2-37
2.6.3 Ohio ............................................................................................................................ 2-38
2.6.4 Tennessee .................................................................................................................... 2-39
2.6.5 Texas ........................................................................................................................... 2-39
2.6.6 Washington ................................................................................................................. 2-40
Table of Contents (continued)
Chapter 3 Performance Funding in Higher Education
3.0 Introduction ............................................................................................................................ 3-1
3.1 Best Practices and Guiding Principles in Developing and Implementing Systems
of Institutional Performance Measurement ............................................................................ 3-1
3.2 Frameworks Used in Developing Performance Indicator and Performance-Based
Funding Systems .................................................................................................................... 3-4
3.3 Program Design and Implementation Issues .......................................................................... 3-6
3.3.1 Indicators and Indicator Weights .................................................................................. 3-6
3.3.2 Allocation Methods ....................................................................................................... 3-7
3.3.3 Funding Levels.............................................................................................................. 3-7
3.4 Performance or Accountability in 2010.................................................................................. 3-8
3.5 Performance Indicators in Select Higher Education Systems .............................................. 3-10
Chapter 4 Evaluation of the Nevada Funding Formula
4.0 Introduction ............................................................................................................................ 4-1
4.1 Guiding Principles for the Formula Evaluation ...................................................................... 4-1
4.2 Evaluation of the Current NSHE Funding “Formula” or Model ............................................ 4-2
4.2.1 Instruction ..................................................................................................................... 4-3
4.2.2 Research ...................................................................................................................... 4-14
4.2.3 Public Service ............................................................................................................. 4-15
4.2.4 Academic Support ....................................................................................................... 4-15
4.2.5 Student Services .......................................................................................................... 4-17
4.2.6 Institutional Support.................................................................................................... 4-19
4.2.7 Operation and Maintenance of Physical Plant ............................................................ 4-20
4.2.8 Scholarships and Fellowships ..................................................................................... 4-22
4.2.9 Revenue Components ................................................................................................. 4-22
4.2.10 Other Components, Including Performance or Incentive Funding ........................... 4-24
4.2.10.1 Performance Funding ................................................................................ 4-24
4.2.10.2 Incentive Funding ..................................................................................... 4-25
4.2.10.3 Inequity in the Base .................................................................................. 4-26
Chapter 5 Summary
5.0 Instruction ............................................................................................................................... 5-2
5.1 Research ................................................................................................................................. 5-4
5.2 Public Service ......................................................................................................................... 5-4
5.3 Academic Support .................................................................................................................. 5-4
5.4 Student Services ..................................................................................................................... 5-5
5.5 Institutional Support ............................................................................................................... 5-5
5.6 Operation and Maintenance of Physical Plant ........................................................................ 5-5
5.7 Scholarships and Fellowships................................................................................................. 5-5
5.8 Revenue Components ............................................................................................................. 5-6
5.9 Other Components, Including Performance or Incentive Funding ......................................... 5-6
5.9.1 Performance Funding .................................................................................................... 5-6
5.9.2 Incentive Funding ......................................................................................................... 5-6
5.10 Summary of Options............................................................................................................. 5-7
Appendix A Individuals Interviewed
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ACKNOWLEDGEMENTS
MGT of America, Inc. wishes to acknowledge the many individuals who were extremely
gracious in providing assistance, data, and advice that contributed greatly to this report. We
thank the members of the Nevada System of Higher Education’s Board of Regents, the
Chancellor of the System and his key senior staff, presidents of the colleges and universities and
campus senior staff, the Governor and his staff, State legislative leadership including committee
chairs and ranking minority members, staff of the Legislative Counsel Bureau, students, and
business people and other Nevada citizens. All of these individuals provided information related
to the funding of the System, to perceived strengths and weaknesses of the funding model, and
all offered their perceptions of how the formula could be improved. Without the input of all these
individuals, this report would not be possible.
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Executive Summary
In May 2010, the Nevada System of Higher Education (NSHE) engaged MGT of America, Inc. to provide
recommendations on funding formulas through evaluation of the existing Nevada funding formula (the
NSHE formula). The review was to include funding sources and consider mission differentials; through
review of other states’ and systems’ funding methods MGT was to contrast and compare the NSHE
formula to the other major funding formulas used by the states for public institutions of higher education.
Specifically, MGT was engaged to address each of the following:
Review of other states and/or systems and compare and contrast the NSHE formula to
the other major funding methods for public institutions of higher education in the
United States.
Analyze the “drivers” for the formula which include (but are not limited to) enrollment
(FTE), student to faculty ratios for program costs (allowing for the range of
developmental to professional programs) and rural and small college considerations.
Evaluate and as appropriate identify and recommend formula attributes to consider
that would address mission differences. Without limiting the foregoing, this part of the
analysis should address funding for research.
Identify if, and how, performance standards and outcomes could be included in the
funding formula.
Evaluate and as appropriate identify how administrative functions required for
institutions with multiple sites may be a component of a funding formula.
Differentiate between full campus-level operations and extended centers.
Include in the analysis specific alternatives for recommended changes, additions, or
modifications to the NSHE formula, including best practices from funding models of
other states or higher education systems.
MGT traveled throughout the State to interview the members of the NSHE’s Board of Regents, the
Chancellor of the System and his key senior staff, presidents of the colleges and universities and campus
senior staff, the Governor and his staff, State legislative leadership including committee chairs and
ranking minority members, staff of the Legislative Counsel Bureau, and business people and other
Nevada citizens. Also, MGT collected information on other states’ funding models, including historical
information and “best practices” information; information on other states’ use of performance funding,
“best practices” in performance funding, and use of performance indicators.
There is a new wave of funding formulas in the 21st Century – based on performance and on an increase
in the number of “completers” as a means of improving the economy. The new models reflect the needs
of the state and its citizens, not merely the needs of the institutions where the state’s needs are measured
by course completions, degrees or other “completions,” and success in meeting the state’s needs. More
than 20 states now have adopted some form of performance funding formulas.
This new construct was included in the evaluation of the current Nevada funding model. In addition, any
alternative to the current funding model was evaluated by the following criteria that the presidents and
Chancellor of the Nevada System of Higher Education identified to guide the development of a funding
model:
Outcomes-based
Mission-sensitive
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Executive Summary
Size-sensitive
Adaptable to economic conditions
Equitable
Reliant on valid and reliable data.
The current Nevada funding model or “formula” is multi-faceted and has evolved over the last thirty years
into a complex funding model with multiple components related to functional areas of a college or
university budget. Overall, the judgment could be made that the formula’s many components work
together to satisfy most of the criteria determined by the Chancellor and presidents as the important
criteria for a formula, with the exception of “outcomes-based.” The current funding model does not have
a performance component, or an incentive funding component, and could be improved by additions or
changes to incorporate performance. There is no linkage to the goals for the colleges and universities,
nor any measure of accomplishment, and no link to performance standards.
Moreover, multiple improvements can be made to the Nevada model to make it more mission-sensitive,
size-sensitive, adaptable, and equitable. Any of these possible options for changes should be examined in
Nevada’s usual orderly process for changes to the higher education formula funding through the
legislative interim study committees, and should include consultation with all appropriate stakeholders.
Instruction
There are multiple components of the Instruction formulas that merit attention: the taxonomy matrix,
classification of courses within the taxonomy matrix, remedial classes; faculty mix between full-time and
part-time, lower division differentiation of costs by sector, doctoral discipline costs, operational cost factors,
productivity factors, rolling average FTE, and the complexity of the Instruction formulas. Instructional
costs for multi-campus operations are no different than for single campus operations, as the costs of
instructional salaries are the same. Therefore, the issue of multi-campus operations will be discussed under
other components of the funding model.
Credit Hour Matrix (taxonomy). The first issue is the credit hour matrix, which collapses all credit hours
by discipline and level of instruction into what has been called a four-by-four or 16-cell matrix (four cost
categories and four levels of instruction). The matrix is actually a twelve-by-four matrix. The purpose of
the matrix is to recognize differences in the cost of instruction that vary by discipline, by size and type of
institution, and by level of instruction. Credit hours earned in the Schools of Medicine, Dentistry, and Law
are not included in this matrix.
Cost matrices generally are the result of cost studies, but Nevada does not do a periodic cost study; any
changes to the matrix will have to rely on cost studies done by other states. In other states, disciplines are
not necessarily in the same cost category across all four levels of instruction; doctoral costs are placed into
the cost categories not just one as the current Nevada matrix places disciplines.
Using the cost studies from other states, there are a number of classifications into which academic programs
may be placed. Nevada also could take an average across all the cost studies and place disciplines into a
four-by-four matrix, a three-by-four matrix, or even an eight-by-four matrix, all of which would be simpler
than the current matrix. MGT recommends that NSHE work with appropriate stakeholders to
determine an instruction matrix that would more closely approximate the current cost of these
courses. Included in the cost matrix would be a differentiation of the costs of doctoral programs.
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Executive Summary
New student-faculty ratios that are consistent with the costs of providing services should be included
in the matrix.
The current matrix does include a provision to recognize differences in the sizes of the institutions, in that
there are different ratios for the smaller community colleges. This is an important component of the matrix,
and should be continued in some manner to recognize economies of scale. Such a factor could be done by
keeping the student-faculty ratios the same across all institutional sizes and including a base amount
for institutions under a certain size.
Classification of Disciplines within the Matrix. Correct placement of courses in the matrix is critical to
the validity and equity of the formula. Currently, all distance education courses are defined as high cost.
MGT recommends that NSHE consider placing only those distance education credit hours that are
two-way interactive video in the “high cost” category. All other distance education would be placed in
the appropriate discipline category.
Remedial Courses. Currently courses that are remedial in nature, or not at the college level, are not
included in the formula for UNR or UNLV, but are included in the discipline mix for NSC and the four
community colleges. MGT recommends that the NSHE consider allocating an additional instructional
faculty person and one-half an FTE staff person at NSC, GBC, WNC, TMCC, and CSN for each 80
successful remedial course completions. Faculty salary amounts and other allocations could be computed
as in the other components of the Instruction formula.
Faculty Mix and Differentiation of Lower Division Courses. For the universities and state college, the
faculty numbers generated by the formula are all considered to be full-time positions. At the community
colleges, 60 percent of the faculty positions are assumed to be full-time and the remaining 40 percent are
part-time. Part-time faculty positions are funded at 60 percent of the full-time faculty salary.
It is recommended that NSHE consider in its discussions with appropriate stakeholders that new FTE
faculty positions generated by the formula calculation be 100 percent full-time positions. Of course,
this change will have an impact on the total funding requirement for the formula since these positions will
be funded at 100 percent of the salary cost, instead of the current 84 percent (60% + 60% of 40%). This
change will make the formula more equitable, and addresses the criterion “outcomes based.”
Operational Factors. The current formula provides different amounts for operating and wage costs at a
predetermined amount which is adjusted at the inflation rate plus 1 percent. Currently, universities are
funded at $7,368 per faculty FTE; NSC at $6,141 per faculty FTE; community colleges at $5,650 per faculty
FTE; and classified staff at $2,825 per FTE for all institutions. Differences in operating allocations
contribute to inequities in the formula; therefore, it is recommended that NSHE consider that both the
operating and wage costs per faculty FTE and the equipment funds per full-time faculty person
should be equal for the universities, NSC, and the colleges.
Performance Factors. The current Instruction formula is based on the number of credit hours for which
students are enrolled, rather than the credit hours earned or completed. The use of enrolled credit hours
“incents” the institutions to get more students into courses, but not to get the students through the courses
successfully. This is an unintended consequence of the formula.
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Executive Summary
It is recommended that NSHE consider through its formula revision process with appropriate
stakeholders whether the number of credit hours used in the instruction formula should be credit
hours completed instead of enrolled credit hours. Nevada easily could incorporate this performance
feature into its Instruction formula. Such a change would meet the criterion of “outcomes based.”
Rolling Average FTE. The use of the rolling three-year average student count has smoothed changes in
funding during those times when college or university enrollments are declining, and allowed institutional
managers time to plan for change. One of the criticisms that legislators, legislative staff, and the governor’s
staff have made about the formula is that the rolling average is not being used when enrollments are
increasing but only when some enrollments are declining. Since 2001, the NSHE has not had a time when
enrollment system-wide declined.
The rolling average FTE works well in times of consistency in enrollment and in funding, but does not
provide sufficient opportunity for planning in other economic times. It is recommended that consideration
be given to evaluating and potentially modifying the method of counting enrollment.
Complexity of the Formulas. Nevada’s instruction “formula” actually is comprised of five or six separate
formulas, depending on how the salary schedule is counted. Although Instruction is the most complex of all
the functional areas for which formulas exist. Nevada’s set of formulas is the most complex of all the states.
It is recommended that NSHE consider reducing the complexity of the Instruction component of the
formula by incorporating all cost calculations into one.
Research
Nevada currently does not use a formula for research funding. Rather, funding is determined on an
incremental basis. The lack of a research component in the current formula does not meet several of the
criteria established as guiding principles for any change to the formula. This component currently is not
“outcomes-based” or “mission sensitive.”
MGT recommends that NSHE consider adding a component of the formula to recognize the research
mission of the System. Any of three alternatives – component of the formula, part of performance funding,
or incentive funding – would fulfill the mission sensitive criterion. Either the performance funding or
incentive funding component would meet both the mission sensitive and the outcomes based criteria.
Public Service
No change is recommended for this funding.
Academic Support
Nevada’s funding formulas for Academic Support include separate calculations for library staffing,
operating and equipment, and other areas. For the community colleges, the Academic Support formula
recognizes economies of scale by applying a differential percentage of the Instruction budget for GBC
and could be perceived as adequate to recognize the additional costs of extended centers and distance
education.
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Executive Summary
On the other hand, there is no recognition of any possible additional costs of full campus-level operations
in the Academic Support area at multiple campus sites. In other states where a community college has
more than one campus, there is no special or additional formula for Academic Support. For the
community colleges, the Academic Support formula follows the best practice formula, and does include a
consideration for the size of the college. No change is recommended for the community college
formula since it adequately provides resources that are linked to mission, are size-sensitive, and are
equitable in the distribution of resources.
For UNLV, UNR, and NSC, the formulas provide for economies of scale in the staffing and in the
libraries. It is recommended that NSHE consider increasing the percentage for NSC to 15 percent.
This is a mission-sensitive adjustment that relates to the special needs of the students attending NSC,
many of whom are first-generation students with poor academic backgrounds.
The American Library Association is expected to publish new standards for academic libraries that
consider changes in technology and in the ways in which students now use libraries. When these new
standards come out, it is recommended that the Clapp-Jordan formula be replaced by the new
standards.
Student Services
Nevada’s funding formula for Student Services provides funding based on the combined headcount and
SFTE enrollments. The formula provides additional positions for Student Services based on one additional
position for each 100 students residing in dormitories. This is a best practice that should be adopted by
other states. In addition to these calculations, Nevada’s Student Services formula has a unique component:
funding to cover compliance costs associated with the provisions of the Americans with Disabilities Act
(ADA). Institutions receive $1,000 for each student with a documented disability. This is a “best practice”
and should be emulated by other states although the dollar amount inshoulbe be evaluated
periodically based on actual costs.
The Nevada formulas for Student Services follow for the most part the “best practices” formulas of other
states, by including an economy of scale and fixed/variable cost factors, and by basing the count of students
on both headcount and full-time equivalent students. Similarly to Academic Support, the Student Services
formula does not include an explicit component for colleges or universities that operate multiple sites,
whether those are centers or full-service campuses. However, by including headcount students in the
calculation, there is adequate consideration of the costs of counseling, registering, advising, and admitting
students. The best operational practices of other institutions include only one admissions office, one
registrar, and numbers of counselors/advisors consistent with the number of students needing services.
However, the Nevada formulas do not consider the special needs of students who come under-prepared for
the rigors of a post-secondary education. It is recommended that NSHE consider adding an additional
dollar amount per Pell recipient to recognize the the costs of providing additional services.
Institutional Support
Nevada’s formula for Institutional Support follows one of the best practices formulas by multiplying a
percentage of each institution’s operating budget (less institutional support) including all applicable
appropriations such as the School of Medicine, Agriculture Experiment Station, Law School, or Dental
School. The current formula does not include differentiation for those institutions which have multiple
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Executive Summary
sites, whether those sites are centers or full campus-level operations. This is consistent with the formulas
of other states which consider economies of scale and provide differential funding based on mission.
No changes to Institutional Support are recommended.
Operation and Maintenance of Physical Plant
Nevada’s methodology for funding physical plant operations and maintenance includes both formula
components and non-formula components. These formulas recognize the differences in the missions of
the institutions by allocating funding based on gross square feet. It should be noted that this is the only
function of the formula in which the Desert Research Institute participates. No change is recommended
for the Physical Plant formula.
Scholarships and Fellowships
Nevada does not have a formula for scholarships and fellowships. No change is recommended at this
time, although this is certainly an important issue to consider in the context of affordability of higher
education and access.
Revenue Components
There are two sides in the calculation of funding formulas for higher education; the needs of the
institution, and the resources to fund those needs. Many of the states that use funding formulas in the
resource allocation process calculate the need to be funded only by state revenues. Others calculate a total
resource need that is funded by a combination of state and institutional resources (for example, student
fees and tuition). Nevada’s formula calculates an amount of need that is funded by a combination of state
and institutional resources. The formula has not ever been “fully funded,” meaning that the combination
of state and institutional resources has not equaled the total amount of “need” as calculated by the funding
formula.
MGT recommends that NSHE consider with the Legislature and other appropriate stakeholders a
modified method of calculating the institutions’ support of the budget.
Other Components, Including Performance or Incentive Funding
To introduce components into the Nevada funding formula that will address performance as well as incent
institutions to produce certain results, it is recommended that NSHE consider in its process for revising
the formula two components to add to the funding formulas: a performance funding component and
an incentive funding component.
Performance Funding
To introduce performance funding into the Nevada formulas for higher education, MGT recommends that
NSHE consider two components:
1. Count student credit hours completed, not credit hour enrollments.
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Executive Summary
2. Provide a performance pool equal to a portion of the institution’s budget, which shall sit in
a separate fund to be distributed to the institutions as earned. These funds shall be one-
time funds that are allocated each year, and distributed by the Regents when institutions
meet certain performance standards.
Another option for the community colleges is to copy the strategy employed by the Washington State
Board for Community and Technical Colleges (WSBCTE) using “momentum points” which are times in
a student’s college education that lead to continued success.
Incentive Funding
Another component of funding that is tied directly to state goal is incentive funding. Under incentive
funding each institution would be eligible to compete for funds in a pool set aside for achieving certain
goals. Nevada could establish pools that were linked to state needs, such as nursing graduates or teachers or
mining engineers or research funding in specific fields. Each institution that “succeeded” in its goal would
share in the pool. Likely, such a pool of funds would not be established in the current economic
environment, but could be phased in. DRI would be eligible for participation in this pool of funds.
Summary of Options
MGT has identified a number of areas within the Nevada funding methodology that merit consideration
for changes to or improvement on the formula(s) during the NSHE/legislative formula revision process.
The following is a summary by functional area.
Instruction:
There are two main options for the Instruction functional area:
1. Modify the taxonomy matrix, keeping all the separate calculations (with optional
changes to the separate calculations); or
2. Modify the matrix, including all calculations in one formula to simplify the
methodology.
Within those two main options, there are many “sub-options” related to the matrix:
the size of the matrix; i.e., 4 by 4, or 8 by 4, or 3 by 4, or 12 by 4.
use of credit hour costs or student-faculty ratios.
placement of disciplines within the matrix, including across levels of instruction.
placement of distance education courses.
student-faculty ratios/credit hour costs for lower division courses.
base funding for small institutions.
funding for remedial education.
calculation of credit hour costs/weights or student-faculty ratios
use of the rolling average FTE or credit hours.
use of a performance factor such as completed credit hours.
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Executive Summary
In addition, if the decision is made to stay with multiple components, an option for equating the formula
for operating and wage costs should be considered.
Research:
Three options are provided for adding a research component to the formula for UNR, UNLV, and DRI:
part of the formula, a performance funding, or incentive funding component.
Public Service, Scholarships and Fellowships, Institutional Support, Physical Plant:
No changes.
Academic Support:
Replace the Clapp-Jordan formula with the recommendations of the American Library Association when
those recommendations are issued.
Increase the percentage of the instruction budget allocated to NSC for other academic support.
Student Services:
Include for the universities, community colleges, and NSC a factor that provides funds based on the
number of Pell Grant recipients or some other measure of “need”
Revenue Components:
Consider a modified method of calculating the institution’s support of the budget.
Performance Funding:
Establish a pool of a portion of appropriations to be used to “reward” institutions for performance on a set
of five performance indicators, two of which are established state-wide (except for DRI) and three of
which are institution-specific (all five would be specific for DRI), with weights for each indicator
determined by the Chancellor in consultation with the institution’s president. OR
For the community colleges, use momentum points.
Incentive Funding:
Establish an incentive pool of state funds to “incent” college, university, and DRI performance in meeting
state needs.
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Chapter 1
Introduction
1.0 Background
In May 2010, the Nevada System of Higher Education (NSHE) engaged MGT of America, Inc. to provide
recommendations on funding formulas through evaluation of the existing Nevada funding formula (the
NSHE formula). The review was to include funding sources and consider mission differentials; through
review of other states’ and systems’ funding methods MGT was to contrast and compare the NSHE
formula to the other major funding formulas used by the states for public institutions of higher education.
Specifically, MGT was engaged to address each of the following:
Review of other states and/or systems and compare and contrast the NSHE formula to
the other major funding methods for public institutions of higher education in the
United States.
Analyze the “drivers” for the formula which include (but are not limited to) enrollment
(FTE), student to faculty ratios for program costs (allowing for the range of
developmental to professional programs) and rural and small college considerations.
Evaluate and as appropriate identify and recommend formula attributes to consider
that would address mission differences. Without limiting the foregoing, this part of the
analysis should address funding for research.
Identify if, and how, performance standards and outcomes could be included in the
funding formula.
Evaluate and as appropriate identify how administrative functions required for
institutions with multiple sites may be a component of a funding formula.
Differentiate between full campus-level operations and extended centers.
Include in the analysis specific alternatives for recommended changes, additions, or
modifications to the NSHE formula, including best practices from funding models of
other states or higher education systems.
MGT traveled throughout the State to interview the members of the NSHE’s Board of Regents, the
Chancellor of the System and his key senior staff, presidents of the colleges and universities and campus
senior staff, the Governor and his staff, State legislative leadership including committee chairs and
ranking minority members, staff of the Legislative Counsel Bureau, and business people and other
Nevada citizens. Interviews gathered input from stakeholders related to the funding of the System, to
identify perceived strengths and weaknesses of the funding model, and to understand perceptions of how
the formula could be improved. MGT also discussed with staff and community representatives other
states’ performance measures. Information learned from the interviews is summarized in Section 1.2.
In addition, MGT reviewed materials related to NSHE’s funding formula, its development, legislative
actions, and materials related to the equity of the formula, including the Report of the Committee to
Evaluate Higher Education Programs issued in January 2005. These materials were used in the
assessment of the current formula.
Also, MGT collected information on other states’ funding models, including historical information and
“best practices” information. These data are summarized in Chapter 2, which also includes the criteria
that the presidents and Chancellor determined were the underlying principles for formula development in
Nevada. Information on other states’ use of performance funding and “best practices” in performance
funding and use of performance indicators may be found in Chapter 3. Chapter 4 examines in depth the
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Chapter 1
Introduction
current Nevada funding formulas and assesses the formulas against the guiding criteria. Chapter 5
provides a summary of the report, including options for improvement of the current funding model in the
context of best practices for both funding models and performance standards.
The remainder of this chapter includes a summary of the information gathered from stakeholders, and a
discussion of the history of Nevada’s funding model. A list of the individuals and related organizations
that were interviewed and from whom information was gathered may be found in Appendix A.
1.1 The Nevada System of Higher Education and the Funding Formula
Nevada has a long history of using a funding formula to calculate budget requests that would provide
adequate resources and equity in the allocation of those resources. In 1968, the Higher Education
Advisory Committee and the Chancellor’s office of the University of Nevada System both suggested that
the state should use an enrollment-driven formula for funding higher education. Beginning with the 1969
Legislature, the Governor recommended funding for the system, which consisted of two universities
(University of Nevada Reno [UNR] and Nevada Southern University, now University of Nevada Las
Vegas [UNLV]), based on student to faculty ratios of 20 full-time equivalent students to one faculty
member. An undergraduate FTE was set equal to 16 student credits in the Fall semester, or 9 student
credits at the graduate level. Funding for graduate assistants, the number of classified positions, the
number of hourly positions operating expenses, and out-of-state travel were all driven by the number of
faculty positions. 1
Since that time, the formula has been modified several times as well as become more complex. Similarly,
the NSHE has grown and become more complex as Nevada has grown. The System now includes a
research institution, the Desert Research Institute; two research universities, UNR and UNLV; a state
college, Nevada State College; and four community colleges, College of Southern Nevada (CSN), Great
Basin College (GBC), Truckee Meadows Community College (TMCC), and Western Nevada College
(WNC). To add to the complexity, all the community colleges except TMCC now have limited authority
to grant four-year degrees in specific fields, and are classified by the National Center for Education
Statistics as “four year colleges.”
As shown in Exhibit 1-1, headcount enrollment has grown significantly, especially in the recent years as
the state of the economy has led to many individuals returning to college. In the 24 years since Fall 1984,
enrollments have grown from 47,150 headcount students to 113,911 students in Fall 2009, a 141.6 percent
increase. The increase has been the greatest at the community colleges, which enrolled 24,815 headcount
students in Fall 1986, and 66,502 in Fall 2009, an increase of 41,687 students or 168 percent. The four-
year sector increased from 22,335 students in Fall 1986 to 47,409 students in Fall 2009, a 25,704 student
increase or 112.3 percent. Although not as great in terms of number change, similar increases are seen in
the number of annualized average full-time equivalent student enrollment (AAFTE) as shown in
Exhibit 1-2. FTE enrollments increased from 22,155 in 1986-87 to 65,665 in 2009-10, an increase of
46,643 or 210.5 percent. Again, the increase was largest at the community colleges.
1 Richardson, James T. and K. Donald Jessup, “The History of Formula-Based Budgeting for Nevada Universities,” Nevada
Public Affairs Review, 1981, pp. 64 – 68.
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EXHIBIT 1-1
Headcount Enrollment, Fall 1999 To Fall 2009
Fall
College of
Southern
Nevada
Great
Basin
College
Nevada
State
College
Truckee
Meadows
Community
College
University
of Nevada
Las Vegas
University
of Nevada
Reno
Western
Nevada
College
Total
1986 11,763 1,764 7,390 12,722 9,613 3,898 47,150
1987 12,677 1,973 7,889 13,757 9,947 3,916 50,159
1988 13,032 1,872 8,538 14,800 10,503 4,627 53,372
1989 14,491 2,060 8,675 16,332 10,922 4,901 57,381
1990 15,135 2,277 9,211 18,192 11,487 5,178 61,480
1991 15,551 2,481 9,116 19,504 11,714 4,688 63,054
1992 18,111 2,883 8,938 19,209 11,988 4,687 65,816
1993 17,118 2,490 9,041 19,682 12,137 4,656 65,124
1994 17,113 2,565 8,707 20,239 12,379 4,595 65,598
1995 20,741 2,805 8,458 19,769 12,047 4,410 68,230
1996 25,012 3,200 9,338 19,683 12,279 5,143 74,655
1997 26,707 3,372 10,051 20,272 12,442 5,563 78,407
1998 30,440 2,900 10,139 21,312 12,303 5,572 82,666
1999 35,297 2,822 10,539 21,853 12,532 5,574 88,617
2000 32,639 3,251 10,878 22,342 13,149 5,682 87,941
2001 33,364 2,680 10,445 23,618 14,316 5,657 90,080
2002 33,481 2,733 177 11,250 24,965 15,093 5,369 93,068
2003 35,471 2,564 531 11,348 26,131 16,418 5,183 97,646
2004 35,399 2,575 1,272 11,851 27,645 16,460 5,379 100,581
2005 36,242 2,877 1,562 12,043 28,452 16,652 5,524 103,352
2006 36,843 3,390 1,959 12,193 28,010 16,769 5,528 104,692
2007 39,316 3,251 2,196 12,774 28,477 16,730 5,357 108,101
2008 41,766 3,370 2,126 13,137 27,903 16,907 5,218 110,427
2009 43,561 3,621 2,517 13,582 28,152 16,740 5,738 113,911
Increase 31,798 1,857 2,517 6,192 15,430 7,127 1,840 66,761
Source: NSHE Office of Academic and Student Affairs, 2010.
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EXHIBIT 1-2
Annual Average Full-Time Equivalent Enrollment, 1986-87 To 2009-10
Source: NSHE Office of Academic and Student Affairs, 2010. Totals do not include UNLV Law School and Dental School, nor UNR Medical School enrollments.
Method of calculating FTE was changed in Fall 2001.
Year
College of
Southern
Nevada
Great
Basin
College
Nevada
State
College
Truckee
Meadows
Community
College
University
of Nevada
Las Vegas
University
of Nevada
Reno
Western
Nevada
College
Total
1986-87 3,656 488 2,512 7,646 6,763 1,090 22,155
1987-88 4,066 500 2,596 8,500 7,011 1,202 23,875
1988-89 4,440 525 2,827 9,387 7,230 1,325 25,734
1989-90 4,899 600 3,104 10,556 7,419 1,507 28,085
1990-91 5,293 794 3,270 11,708 7,890 1,665 30,620
1991-92 6,391 870 3,569 12,605 8,359 1,750 33,544
1992-93 7,345 932 3,741 12,597 8,720 1,796 35,131
1993-94 6,953 906 3,682 12,580 8,732 1,819 34,672
1994-95 6,998 894 3,498 12,823 8,857 1,833 34,903
1995-96 8,857 939 3,434 12,851 8,757 1,746 36,584
1996-97 10,424 1,015 3,908 13,439 8,973 1,842 39,601
1997-98 11,256 1,143 4,287 14,162 9,183 1,982 42,013
1998-99 12,597 1,167 4,516 14,630 9,277 2,012 44,199
1999-2000 14,222 1,236 4,654 15,055 9,581 2,061 46,809
2000-01 14,315 1,321 4,766 15,473 10,172 2,060 48,107
2001-02* 15,208 1,203 4,898 16,046 10,449 2,149 49,953
2002-03 16,647 1,263 146 5,259 17,267 11,295 2,160 54,037
2003-04 17,569 1,427 394 5,523 18,350 11,778 2,179 57,220
2004-05 17,685 1,343 943 5,845 19,675 12,009 2,247 59,747
2005-06 17,891 1,363 1,079 6,026 20,034 12,224 2,331 60,948
2006-07 18,176 1,589 1,327 6,160 19,638 12,039 2,393 61,322
2007-08 19,607 1,643 1,437 6,479 19,543 12,227 2,388 63,324
2008-09 21,042 1,786 1,424 6,796 19,545 12,583 2,489 65,665
2009-10 22,027 1,994 1,726 7,307 20,086 12,770 2,888 68,798
Increase 18,371 1,506 1,726 4,795 12,440 6,007 1,798 46,643
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As the System and the institutions have become more complex, awarding more and different types of
degrees, and enrolling students in more programs at more levels, the formula also has become more
complex. The current formula remains primarily based on student credit hours which are translated into
full-time positions. The formula excludes professional schools (the Law and Dental Schools at UNLV and
the School of Medicine at UNR), most of the activities of the Desert Research Institute, and certain other
programs or activities like the Cooperative Extension Service operated by UNR as part of its land grant
mission.
The basic formulas currently used to allocate funds for the universities, state college, and community
colleges were developed by the Committee to Study the Funding of Higher Education established by
Senate Bill 443 of the 1999 Legislative Session. The primary focus of the Committee was to provide
equity in the funding for the institutions. The last formal review of the state funding formula was during
the 1999- 2001 biennium and resulted in some changes to the formulas, but retained the basic formula
components.
Some of the key elements of the funding formulas are that institutions are allowed flexibility in
expenditures when the formulas are not fully funded. The formula has not ever been fully funded, and
this is especially true during the last biennium. Exhibit 1-3 displays funding as a percent of formula for
the last two biennia, and shows a significant decline in funding from 85.5 percent of the formula amounts
to 74.1 percent.
EXHIBIT 1-3
Funding As A Percent Of Formula
2007-08 2008-09 2009-10 2010-11
85.50% 85.50% 74.10% 74.12%
Also, fluctuations in enrollments are stabilized by the use of a three-year weighted rolling average of
enrollment. The use of the weighted average permits institutional managers time to react when
enrollments shift. This average methodology is most useful when enrollments are declining. For the 2009-
11 biennium only, the Legislature approved a modification to the three-year weighted average. In light of
the financial condition of the State and the unknown impact of budget cuts on NSHE enrollments, the
formula was calculated using FY 2009 projected enrollments as the budgeted enrollments for FY 2010
and FY 2011.
There are separate formulas used to calculate funding in the following areas:
Instruction;
Academic Support, Including Libraries;
Student Services;
Institutional Support; and
Operation and Maintenance of Physical Plant.
Within each functional area, there are multiple “sub-formulas” that calculate the amount of specific
elements of the functional area. These formulas also are discussed in detail in Chapter 2, in the context of
“best practice” funding formulas used by other states.
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1.1.1 Instruction
The Instruction functional area provides for the institution’s academic, vocational, and technical programs
and provides a pool of resources to fund instructional faculty, classified employees, teaching assistants,
student wages, operating and equipment costs, and the fringe benefits associated with employees. Funding
for instruction is based on legislatively approved student/faculty ratios and projected student full-time
equivalent enrollments. The number of full-time equivalent students determines the number of faculty and
staff that are needed to educate these students by using the ratios. Disciplines are assigned to cost
categories by level of instruction (freshman/sophomore, junior/senior, masters, or doctoral) and the
number of faculty determined by applying student to faculty ratios which differ for the research
universities, the state college, and the community colleges. Student credit hours are converted to full-time
equivalent students by dividing the number of undergraduate credit hours by 30, the number of master’s
level by 24, and the number of doctoral level by 18. The number of new faculty positions at the
community colleges are assumed to be 60 percent full-time, and 40 percent part-time.
The number of faculty positions generated is compared to the prior year’s faculty count, and new
positions are funded on specific salary schedules. In addition, for every five new faculty members, a
classified position with associated costs is generated. To these personnel costs are added an amount for
operating costs and student wages, an amount for equipment funds for each existing position and for new
positions, and for teaching and graduate assistants.
1.1.2 Academic Support
Academic Support is the functional area for services that assist the instructional or academic programs of
an institution. Included in this category are services such as libraries, academic advising, academic
computing, and academic administration, Separate calculations determine the number of positions to be
allocated for academic administration, for library staffing, for operating costs and equipment. In addition,
funding is provided to maintain and improve library collections.
The funding level for Academic Support is determined by the number of faculty positions, the number of
library volumes needed to provide sufficient media resources for the students and faculty, and as a
percentage of the instruction budget. The number of positions is determined by the size of the faculty.
Because a portion of the resources for Academic Support is calculated as a percentage of the Instruction
budget, the Instruction component would be considered a “driver” of the formula amount for Academic
Support. The percentage differs by type of institution and by size. Operating costs and equipment are
calculated by the same formula as used for the Instruction functional area.
1.1.3 Student Services
The Student Services component of the budget calculates funds needed to support student activities that
are outside the formal instructional program, such as registration, financial aid, and counseling. In much
the same way as the calculations are made for Instruction and Academic Support, formulas for this area
provide funds for professional and classified positions, for operating and wage support, for new
equipment for new employees, and for workstation replacements. A “best practice” component of the
Student Services formulas is that an amount is allocated for Americans with Disabilities Act (ADA)
accommodations for students. No other state has this component in their funding formula.
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The amount of resources for Student Services is determined by the number of combined headcount and
full-time equivalent students, and varies by institution and by size. The number of positions needed is
determined by the student to staff ratios, and funded at the same levels as positions in other functional
areas. However, special consideration is given for the needs of Great Basin College and for the number
of students residing in dormitories.
1.1.4 Institutional Support
Institutional Support is the function that provides for each institution’s executive-level activities related to
management, planning, fiscal operations, and security. Institutional support formulas are set as a
percentage of each institution’s budget for the other areas, and include all institutional appropriations such
as Cooperative Extension or the Law School that are not funded through a formula. For each institution, a
specific percentage of the budget is allocated. Workstation replacements also are provided under a
formula that is consistent with the other functional areas.
1.1.5 Operation and Maintenance of Physical Plant
The Operation and Maintenance of Physical Plant function includes the on-going maintenance of
institutional facilities, such as custodial services, grounds maintenance, utilities, and rent. Allocations for
utilities, insurance, and rental or lease costs are not formula driven, but rather are budgeted separately
based on contractual agreements, rate changes, new facilities, and actual consumption. This is the only
component of the formula in which DRI is included.
There are four components to the Plant formula that determine the funding for custodial, building
maintenance, supervisory and technical personnel, and grounds personnel, general operating costs,
equipment, and workstation replacement. The funding level is determined by the gross square feet of
space maintained, by the number of improved acres maintained, and by the age of the facility. New
positions are generated based on a formula that allocates a person for each specified amount of gross
square feet or acres maintained. Funding for equipment and workstation replacement is under the same
formulas as for other areas.
1.1.6 Other Components
In addition to the formula components discussed above, there is an allocation of funds for workstation
replacements for non-formula budget areas such as the Cooperative Extension Services, University Press,
or the Law School. Funds are provided at the same amount per position as in the formula budgets.
1.2 Perceptions of NSHE’s Funding Model
To gather information on the perceptions of the NSHE funding model, MGT traveled throughout the State
to interview members of the NSHE’s Board of Regents, the Chancellor of the System and his key senior
staff, presidents of the colleges and universities and campus senior staff, the Governor and his staff, State
legislative leadership including committee chairs and ranking minority members, staff of the Legislative
Counsel Bureau, and business people and other Nevada citizens. Individuals throughout the State were
interviewed to get a broad range of perspectives on funding of the NSHE. MGT thanks the many
individuals who offered their observations on the funding model, and who provided many documents
related to the System’s funding, the adequacy and equity of the funding, and the efficiency of college and
university operations. A list of the individual interviewed may be found as Appendix A.
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Discussions centered around several major points:
Nevada’s budget difficulties;
higher education as a driver of the economy;
perceptions of inequities in funding, or Nevada as a “divided” state, North vs. South;
inefficiencies in the System;
the complexity of the formula, and lack of understanding of the formula; and
support for the local institution.
1.2.1 Nevada’s Budget and the State of the State
Nevada’s economy has been heavily dependent upon tourism, gambling, and construction. Because these
sectors of the economy have been hardest hit by the recent recession, there have been major reductions in
the State’s budget. Legislators expressed that the budget gap to be faced during the next legislative
session might exceed 50 percent of the State’s total budget. To fill that gap would require not only
reductions in expenditures, likely greater than faced during the current biennium, but also increases in
revenues.
Legislators believed that the State’s citizens are reluctant to support tax increases, which will further limit
funds available for filling the State’s budget hole. The narrowness of the Nevada tax base, coupled with
the reluctance of the electorate to increase taxes, exacerbates the problem. The consistently expressed
opinion was that higher education, as a large part of the State’s budget, should expect significant
reductions in State general fund support next year.
The National Conference of State Legislators (NCSL) projected that Nevada would have the biggest
budget gap of any state, as measured by the percent of its general fund budget. NCSL predicted that
higher education’s budget would take a disproportionate reduction under these conditions.2 Current
legislators and local elected officials were aware of the NCSL report and indicated that further reductions
for higher education were probable.
Nevada’s higher education institutions have had state appropriations reduced in the last several years,
resulting in elimination of degree programs, furloughs of faculty and staff, elimination of both faculty and
staff positions, and limitations on course offerings. Local citizens were concerned that further limitations
of the state budget would result in large additional increases in tuition and fees, which would severely
limit or eliminate the option of higher education for many of the State’s citizens. Those non-System
persons interviewed were not aware, generally, that the Federal stimulus package had made up about 18
percent of “appropriations” that would not continue in the next fiscal year. Without the stimulus funding,
cuts would have been deeper, and/or fees would have increased more than they actually did. Even with
the stimulus funding, community representatives believed that the campus in their community was not
sufficiently funded, and that campus should be getting additional state resources, and should be able to
retain their tuition and registration fee dollars.
2 National Conference of State Legislators Fiscal Affairs Program, “State Funding for Higher Education in FY2009 and
FY2010,” 2010, NCSL, Denver, CO.
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The concern also was expressed that Nevada’s financial condition was not likely to turn around for at
least three to five more years. While some interviewed were concerned that this slow economic recovery
would result in continued disruptions of higher education services to the state’s citizens, others expressed
the opinion that the institutions were providing excellent services to much greater numbers of students
with reduced budgets. Given the apparent ability to continue to “do more with less,” some felt that higher
education’s share of state general funds should continue to be reduced because the institutions were doing
well. This opinion was expressed by only a few legislators.
Institutional personnel were concerned that the likely continued budget reductions meant that their ability
to provide quality services would be limited. Community college staff indicated that many students had
been turned away during the past school year because funding, even with the increased tuition and fee
revenue, was insufficient to provide classes.
There was a general belief that the next legislative session would be especially difficult, because over
one-third of the Legislature would be new (due to term limits), there would be a new governor, and
because the Legislature also would have redistricting to complete. Getting a budget done with
constrained resources, at the same time as redistricting, was going to be a difficult job. Changes in
legislative leadership and in the staff of the Legislature and Governor’s office were perceived as
additional challenges.
1.2.2 Higher Education as a Driver of the Economy
Local businesspersons especially were vocal about the Nevada System of Higher Education’s role in
improvement of the economy. Most individuals interviewed said that higher education has not been
valued highly in Nevada, and that mindset had to change if there was to be the rate of economic growth
the state previously experienced. There was a growing concern that Nevadans may perceive higher
education as a private benefit that the students and their families should pay for, rather than an economic
engine for the broader economy.
There had been the impression among young people that higher education was not necessary to get high
paying jobs; multiple interviewees gave the example of the young man who dropped out of high school to
take a job parking cars and who made $100,000 per year. Those jobs are not as plentiful as they used to
be, and so there appeared to be some re-evaluations of the role of higher education. However, the belief
that many high paying jobs did not require any training or education beyond high school was still
prevalent.
Several statistics were given about Nevada’s low ranking on economic indicators. Although Nevada is
projected to have the fastest growth rate (between 2010 and 2020) in the number of high school
graduates,3 Nevada ranks 50
th among the states in high school completion rates. Also, Nevada ranks near
the bottom of the states in the percentage of the adult population with a college degree. The economy and
the State itself could not improve or return to its prior level of growth and prosperity without an increase
in college completions.
Legislative and System staff stated that diversification of the economy was critical if Nevada was to
prosper in the 21st century. Knowledge and skills were considered to be more important drivers of the
economy than traditional drivers such as natural resources and location. Citizens were especially vocal
that economic diversification into the green energy and high tech arenas was needed to move the
3 Western Interstate Commission for Higher Education (WICHE) website, 2010.
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economy in a positive direction. The universities and Desert Research Institute were cited as key players
in bringing about the diversification of the economy, and crucial to expanding the pool of potential
educated employees. The community colleges were seen as important in training of employees for new
types of jobs in a “green” economy, as well as for the jobs that any community needs to maintain a
relatively good standard of living. Among these jobs were auto mechanics, plumbers, electricians, and
other skilled laborers. If the universities and DRI could not provide the necessary research base for some
of the emerging sectors of the economy, then the perception was that the State would not have a growing
economy.
Legislators pointed out that the issue of higher education’s role in the economy was addressed in the
Report of the Committee to Evaluate Higher Education Programs published in January 20054 which had
as its charge the following:
Examine and evaluate the need for existing and potential higher education programs
to ensure economic progress and development within the state to ensure that the
educational needs of residents are being met.
Identify areas of high priority where needs are not currently being met, including
without limitation, the areas of educational programs for students who desire to
become nurses or teachers.
Determine whether it is feasible to reallocate existing resources within institutions to
meet the critical needs of the state that are not currently being met.
Determine whether General Fund appropriations and student fee revenues are being
efficiently distributed internally at each campus.
Recommend to the Board of Regents and the Legislature such action as may be needed
for the efficient and effective operation of higher education if the state is to progress
economically and socially.
The Committee concluded that higher education was a critical component of driving the State’s economy,
but that the current funding mechanism did not provide incentives either for efficiency of operation or for
meeting statewide needs. The link to the public agenda was lacking, and there was a need to focus the
Legislature on strategic funding linked to state priorities, rather than on internal management of the
institutions. They recommended that a performance funding pool and investment pool be set up to reward
progress toward meeting the needs of a growing economy, and to further state priorities such as economic
development. Current legislators commented that multiple committees had been unable to change state
policy even in good economic times, and that tying higher education funding to certain state goals was the
only way to get “new” money. Even that strategy was perceived to be unlikely to succeed in the next
legislative session.
Business persons interviewed understood the importance of higher education to moving the economy
forward, and looked to the Legislature to improve the situation by linking higher education funding to
meeting the needs of the State. They were aware that this linkage has been talked about for some time,
but said that nothing had been done. Developing the workforce for the future was perceived to be the role
of the NSHE, and that issues related to a technologically-savvy workforce were critical to improvement of
the State’s economy.
4 Legislative Counsel Bulletin 05-3: Committee Evaluate Higher Education Programs, 2005, p. 1.
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These business persons noted that one component of attracting business and industry (and jobs) to
diversify the State’s economy was providing an “investment” of seed money in research that could have
spillover impacts on Nevada’s economy. This was seen as an important, but unlikely, investment of State
resources, given the status of the State’s budget shortfalls.
1.2.3 Inequities in Funding
In MGT’s conversations throughout the State, there was much conversation about the equity of funding.
MGT was given documents evaluating the equity of funding, some of which were thoughtfully done and
presented cogent arguments about the formula and its application. Many of those interviewed perceived
that the current MGT formula study was really an equity study, rather than a formula study.
There were some perceptions that the institutions in the “north” are favored over the institutions in the
“south.” In addition, a few individuals had the perception that there are inequities in funding by sector:
that is, the community colleges may not be funded equitably with the four-year sector, and vice versa.
Many individuals who have been in the System for some years noted that in 1999, MGT completed a
study that identified funding inequities for UNLV, CSN (then CCSN), TMCC, and WNC (then WNCC).
In part in response to the MGT study, the current formula was developed in 1999 by the Committee to
Study the Funding of Higher Education in Nevada. The report of the Committee states that the purpose
was “to develop funding formulas that would address the equitable distribution of funds for institutions
within the University and Community College System of Nevada.”5 As a result of this study, legislators
perceived that they had resolved the issue of funding equity. Although the Committee may have
improved the equity in the distribution of resources that was its stated purpose, in some cases the
perception continues to exist that the formulas that resulted continue the inequities. In addition, there were
components of the institutions’ funding that were outside the formula, and that contributed to perceptions
of special funding. Set-asides and special arrangements may have eroded the equity that may have been
in the formula ten years ago.
A study by the Committee to Evaluate Higher Education Programs published in January 20056 noted that
there was underfunding of CSN. Other studies completed by the National Center for Higher Education
Management Systems (NCHEMS) found that several institutions were underfunded. Underfunding does
not necessarily mean inequitable funding.
The 2001 Committee indicated that equity in funding did not necessarily mean equal dollar amounts per
student. Differences in the mix of disciplines and in the levels of instruction lead to differences in the
dollar amounts per student. The Committee gave as examples the greater costs of graduate education or
of courses in the health professions and engineering.
Many of the conversations about the formula included discussions of how the institutions have matured
and changed since 2001. UNLV has become a research institution; three community colleges have
received limited authority to award bachelors’ degrees; NSC has been established as a lower cost option
for a four-year degree; and all of the institutions are serving more students than in 2001, some 30 percent
more students, many of whom are ill-prepared for college. There was some sentiment that these changes
alone make a study of the formula timely to recognize the changes in the institutions, and adapt the
formula to changing economic conditions.
5 Legislative Counsel Bulletin 01-4: Committee to Study the Funding of Higher Education in Nevada, 2001, p. 39. 6 Legislative Counsel Bulletin 05-3: Committee Evaluate Higher Education Programs, 2005.
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1.2.4 Inefficiencies in the NSHE
Closely related to the issue of inequities in funding was the issue of inefficiencies in the System – both by
having too many institutions, or by inefficient institutional operations, or by having too many institutions
offering a particular degree. Inefficient operation was a condition that concerned local citizens,
legislators, and business persons as well as individuals in the System.
Of apparent particular concern was the small size of some institutions, which, because of size, were not
able to take advantage of economies of scale. Although this issue was raised by some in the communities
where the smaller institutions were located, they also noted that the institution was needed because of the
inability of students to travel to other campuses.
Several legislators and business persons raised the issue of multiple offerings of the same program in the
same county. For example, UNLV, NSC, and CSN all offer freshman level mathematics and English
courses; or Nevada State and UNLV both offer education degrees. The question was, would it be more
efficient for only Nevada State to offer education degrees, or only CSN to offer freshman level
mathematics. Others raised the issue of which institution could more efficiently offer courses and
programs in areas like Parumph which are not close to the physical location of a campus, but which have
a need for higher education.
An interesting concern was raised about the “inefficiency” designed into the formula which funds lower
division courses, i.e., freshman and sophomore level courses, at different amounts at the universities, at
NSC, and at a third amount at the community colleges. This “inefficiency” occurs in the formula through
three components of the Instruction formula:
1. The student to faculty ratios differ for high cost programs at the community colleges and the
four-year institutions. Other ratios for lower division classes are the same, except at GBC to
consider GBC’s small size.
2. Faculty salaries in the formula differ for the universities, for NSC, and for the community
colleges.
3. New faculty positions at the community colleges are allotted at 60 percent full-time and 40
percent part-time.
The perception was that this creates inefficiency in the System because it costs more for faculty at the
lower division level at the universities than at NSC and at NSC than at the community colleges. Whether
that is actually the case requires additional analysis.
Another “inefficiency” that was raised by community persons was the separate organization of the Desert
Research Institute. While some community and business persons lauded DRI for its attention to
economic development through cutting edge research, others stated that it might be more efficient for the
Reno operation of DRI to be part of UNR and the Las Vegas portion to be run by UNLV.
Others raised the issue of too many institutions offering bachelors’ degrees. The ability of three of the
community colleges to now offer bachelors in limited fields of local need was an issue raised by
individuals who do not live in or close to those communities. There was some concern with the
efficiency of two many institutions with the bachelors in a state with “as small” a population as Nevada’s.
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Still others were critical of the management and operation of the institutions. There is a perception that
there are too many administrators and that faculty members do not teach enough courses. This perception
has existed for many years and is unlikely to go away.
1.2.5 Complexity of the Formula
Most of the Board of Regents members, legislators, and citizens interviewed did not understand the
funding formula, even though they had clear perceptions of its equity and adequacy. Chief financial
officers and budget officers at the colleges, universities, and DRI did understand the model and its many
components, at least at a basic level. Presidents were less aware of the underlying components of the
formulas, as would be expected.
Although the formula is perceived to be very complex, there were many arguments for additional
components to the formula. Every president mentioned the need for a component for remedial education,
even at the universities (although this component was explicitly removed several years ago). Institutional
staff indicated that 30 to 50 percent of incoming students who had recently graduated from high school
needed at least one remedial course before that student could fully benefit from a post-secondary
education.
Legislators cited the complexity of the formula as one reason that they do not understand how/why the
institutions believe they can justify additional funding. Several legislators mentioned that they think that
UNR is funded better than UNLV, or TMCC is funded better than CSN, but they cannot determine if that
is in fact true because they do not understand the underlying formula. Legislative staff may understand
the formula, but still believe that it is too complex, and does not really deal with critical issues of
performance or statewide goals. They also expressed concern that the System’s budget request does not
follow the formula, and question why the formula should be so hard to understand.
At the same time that legislators and board members say the formula is too complex, several raise the
argument that the formula should incorporate additional features that would make it more complex. Of
particular interest are components for performance or incentive funding. In any case, there was agreement
that a workshop to explain the formula was needed for board members and for any legislators who wished
to attend.
1.2.6 Support for the Local Higher Education Institution
As was mentioned above, community representatives, business persons, and legislators all expressed
support for the campus or campuses located in their community. The general impression was that the
institution located in their community was meeting community needs. Community colleges in particular
were perceived as being responsive to the needs of the local community and seeking to offer courses and
programs to meet those needs.
Community representatives spoke very positively about the efforts of the colleges to offer programs that
contributed to workforce development. Several colleges were cited as excellent examples of community
involvement for their proactive establishment of programs that would meet a special need.
The engineering, green energy, and mining communities especially valued the contributions of DRI and
the two universities in research activities that had transfer benefits to their industries. The perception was
that transfer of university research activities to the general business sector was critical to Nevada’s
economic development.
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2.0 Introduction and Overview
State-level funding formulas or guidelines for public higher education have been in use in the United
States for over 60 years.1 Originally envisioned as a means to distribute public funds in a rational and
equitable manner, funding formulas have continually evolved since then into often-complex
methodologies for determining institutional funding needs and allocating public funds. Perhaps the only
constant during this period has been the ongoing controversy among participants in the state budgeting
process surrounding the design and usage of these funding mechanisms. Even though the genesis of
funding formulas may lie in rational public policy formulation, the outcome may not. Formulas are
products of political processes, which implies that formulas result from compromise and that what is
acceptable in one political subdivision may not be acceptable in another.
Although the basic purpose of funding formulas remains the rational and equitable allocation of state
funds for public higher education, as shown in Exhibit 2-1, guidelines are designed and utilized for many
purposes including the following:
by the state higher education agency or governing board as a means of recommending
resources for each institution to the legislature and governor;
by the legislative and executive budget offices as a means of evaluating higher
education budget requests;
by the governing or coordinating board and/or legislature as a means of measuring and
rewarding productivity; and
by the state higher education agency as a means to distribute the state’s higher
education budget allocation to each institution.
In general, formulas used only for the request phase of activities are often less complex than those used to
distribute a lump-sum appropriation within a system.
States use different methods to recommend or allocate funding or articulate funding adequacy.2
Exhibit 2-2 provides information on 7 methods that states reported using in 2006. Among the states, 27
use funding formulas based on credit hours or enrollment relative to cost factors; 14 use benchmarks or
peer institutions; 11 use an allocation based on performance funding or performance metrics; 2 use
performance contracting; 1 (Ohio) uses vouchers {although Colorado uses vouchers, but it did not
provide responses to the survey); 17 use a base plus or minus incremental changes to base appropriations;
and 8 use a hybrid among the methods. These numbers do not add to 50 because states indicated that they
use multiple methods to allocate funding or to articulate funding adequacy. Nevada reported that it uses a
formula based on credit hours or enrollment as well as a base plus model.
By 2010, the economy had shifted dramatically, and use of funding model or formulas shifted also. The
use of formulas in 2010 will be discussed in section 2.5.
1 The terms “funding formula” and “funding guideline” will be used interchangeably throughout this paper.
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EXHIBIT 2-1
Reported Uses Of Formulas/Guidelines
In The Budgeting/Resource Allocation Process, 2006
State
Recommend
to Governor
Legislature
Governor
Budget
Legislative
Budget
Lump
Sum
Approp.
Direct
Approp. Allocation
Mid-year
Reduction Other
Alabama X X
Arizona X X X
Arkansas X X
California X X X X
Connecticut X X
Florida X X X
Georgia X X X X
Hawaii X X X X X X
Idaho X X X X X
Illinois X
Indiana X X X X X
Kansas X
Kentucky X X
Louisiana X X X
Maryland X X X X
Massachusetts X X X X
Minnesota X
Mississippi X X
Missouri X X
Montana X X X X X
Nebraska X
Nevada X X X
New Mexico X X X X X
North Carolina X X X X X X X
North Dakota X X
Ohio X X X X X X X
Oklahoma X X
Oregon X X
Pennsylvania X
South Carolina X X X
South Dakota X
Tennessee X X X
Texas X X X X
Vermont X X X
Virginia X X X X X
Wyoming X X X X X N 29 17 16 9 10 22 6 6
Source: Compiled by MGT from SHEEO 2006 Survey of the states.
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EXHIBIT 2-2
Reported Manner Of Allocating Funding Or
Articulating Funding Adequacy
State
Funding
Formulas/
Enrollment
Formula
Benchmark
or Peers
Performance
Funding
Performance
Contracting Vouchers
Base Plus
Increment Hybrid
Alabama X X X
Arizona X X X
Arkansas X X X
California X
Florida X X
Georgia X
Hawaii X X
Idaho X
Illinois X X
Indiana X X X
Kansas X X X
Kentucky X X
Louisiana X X X X
Maryland X X
Massachusetts X X X
Minnesota X X X
Mississippi X
Missouri X
Montana X
Nebraska X
Nevada X X
New Mexico X X X X
North Carolina X X X
North Dakota X
Ohio X X X
Oklahoma X X X
Oregon X X X
Pennsylvania X X
South Carolina X X X
South Dakota X X
Tennessee X X
Texas X X X X
Vermont X
Virginia X X
West Virginia X
Wyoming X X N 27 14 11 2 1 17 8
Source: Compiled by MGT from SHEEO 2006 Survey of the states.
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Development of an optimal or best formula is complex because there are differences in institutional
missions, even within the same system, and in the capacities of institutions to perform their missions.
These differences do not negate the value of formulas but suggest that formulas can be used to provide a
fiscal base to which (or from which) funding can be added (or subtracted), if justified. Formulas typically
are considered enrollment driven because they are based on credit hours, students, or faculty members,
which makes it relatively easy to evaluate change. If additional funds are justified, then formulas can
provide the basis to target supplemental funding. Because formulas may be enrollment driven, when
enrollments are steady or decline, funding may decrease. This aspect of formula use brought formulas
under attack in several states when institutions experienced declines in enrollment.
When enrollments decline or remain constant, methods are sought to provide additional resources.
Development of new programs and services to meet the varied needs of a changing clientele may require
different configurations of resources in addition to different programs. The use of alternative instructional
delivery methods, including telecommunications delivery of instruction, may require a shift in the
paradigm on funding, as will large increases in enrollments at a time of declining state resources.
To accomplish the purpose of providing an equitable distribution of available resources, a majority of
states and systems have used funding formulas or guidelines in budget development or in resource
allocation to higher education institutions. A formula is defined as a mathematical representation of the
amount of resources or expenditures for an institution as a whole or for a program at the institution.
Programs in this context refer to the categories into which expenditures are placed, as defined by the
National Association of College and University Business Officers (NACUBO). The “programs,”
“functional categories,” or “budget areas” commonly used are the following:
Instruction Institutional Support
Research Operation and Maintenance of Physical Plant
Public Service Scholarships and Fellowships
Academic Support Auxiliary Enterprises
Student Services Hospitals
Mandatory Transfers
Many states or systems provide funding based on these functional or budget programs, with the exception
of auxiliary enterprises, hospitals, and mandatory transfers. These three areas usually are not funded
through state dollars, and hospitals and auxiliary enterprises are not included in Educational and General
(E&G) expenditures, which result from the three basic missions of universities: instruction, research, and
public service. Funding for the remaining categories may be based on formulas in the determination of the
total resource allocation to the institution.
In most states and systems, however, total institutional needs are not determined by a formula mechanism.
Additions are made to the amounts determined by formula to recognize special needs or special missions.
Similarly, given political structures, competition for funds from other state agencies, and shortfalls in
revenue projections, the amount determined by a formula calculation may be reduced to conform to total
funds available.
The breadth and coverage of funding formula and guideline usage varies as well among the states. States
may use formulas for all public higher education sectors (four- and two-year) or just a particular segment.
Further, states may use formulas or guidelines for specific program areas such as instruction and
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academic support, or they may be all-inclusive. A trend over time has been to have more “non-formula”
components in the higher education budget, given the feeling that formulas are not adequate for meeting
the funding needs of certain specialized activities (e.g., co-located instruction, public service activities,
cooperative extension).
2.1 Development of Funding Formulas
Funding formulas have been considered the offspring of necessity.3 The development of an objective,
systematic method of dealing with the funding of many diverse institutions prompted many states to begin
using formulas.4 Prior to 1946, institutions of higher education served a limited and relatively
homogenous clientele. After World War II, enrollments increased dramatically and each state or system
had a variety of liberal arts colleges, land-grant colleges, teacher training colleges, and technical schools
to meet the needs of its citizens.
As the scope and mission of campuses increased and changed (i.e., introduction of community colleges,
teachers’ colleges becoming regional universities), so did the complexity of distributing resources
equitably among competing campuses. Because state resources did not keep pace with increasing
enrollments, the competition for funding became greater. And, because no two campuses are alike,
methods were sought to allocate available funds in an objective manner, to provide sufficient justification
to the Legislature for additional resources, and to facilitate inter-institutional comparisons.
The desire for equity was a prime factor in the development of funding formulas, but other factors served
as catalysts: the desire to determine an “adequate” level of funding; institutional needs to gain stability
and predictability in funding levels; and increased professionalism among college and university business
officers.5 The objective of equity in the distribution of state resources is to provide resources to each of
the campuses according to its needs. To achieve an equitable distribution of funds required a distribution
formula that recognized differences in size, clients, location, and the mission of the college.6
The concept of “adequacy” is more difficult to operationalize in the distribution of resources. What might
be considered to be adequate for the basic operation of one campus would be considered inadequate for a
campus offering similar programs but having a different client base.
Texas was the first state to use funding formulas for higher education. By 1950 California, Indiana, and
Oklahoma also were using funding formulas or cost analysis procedures in the budgeting or resource
allocation process. 7 In 1964 16 states were identified as using formulas; by 1973, the number had
increased to 25 states, and to 33 by 1992.8
3 Gross, Francis M. 1979. Formula budgeting and the Financing of Public Higher Education: Panacea or Nemesis for the
1980s? AIR Professional File, 3. 4Miller, James L. Jr. 1964. State Budgeting for Higher Education: The Use of Formulas and Cost Analysis. Ann Arbor, MI:
University of Michigan. 5 Moss, C.E. and Gaither, G.H. 1976. “Formula Budgeting: Requiem or Renaissance?” Journal of Higher Education. 47, 550-576. 6 Millett, John D. 1974. The Budget Formula as the Basis for State Appropriation in Support of Higher Education. Indianapolis,
IN: Academy for Educational Development. 7 Gross, op.cit. 8 McKeown, Mary P. and Layzell, Daniel T. 1994. “State Funding formulas for Higher Education: Trends and Issues.” Journal of
Education Finance, 19, 319-346.
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Formulas evolved over a long period of time and contributed to a series of compromises between
institutions, governing or coordinating boards, and state budget officials. For example, institutions sought
autonomy while governing or coordinating boards and budget officials sought adequate information to
have control over resources. The development of the Texas formulas is an example of the trade-offs
between accountability and autonomy.
When sudden enrollment increases in the late 1940s caused confusion in the amounts to be appropriated
to Texas public colleges, each institution lobbied the legislature for additional funds. Texas legislators
felt that the institutional requests were excessive and that the division of resources among institutions was
inequitable. Consequently, the legislature asked for some rational mechanism to distribute funds. In 1951
a teaching salary formula based on workload factors was developed; this formula did not recognize
differences among the campuses in roles and missions. By 1957 a series of budget formulas developed by
institutional representatives, citizens, and the new Commission on Higher Education was presented to the
legislature. These formulas were developed only after completion of a major study of the role and scope
of the institutions. The study included an inventory of program offerings and attempted to measure costs
by program. After 1958 a cost study committee was established that recommended adoption of five
formulas for teaching salaries, general administration, library, building maintenance, and custodial
services. In 1961 two formulas for organized research and departmental operating costs were added. By
1996 Texas used 13 separate formula calculations that were developed through complex cost studies of
each of the program offerings on the campuses. Texas continues to use advisory committees to revise and
improve its formulas to encompass two broad objectives: provide for an equitable distribution of funds
among institutions and assist in determining the funding needed for a first-class system of higher
education.9 At each phase of Texas formula development, compromises were reached between the desire
for additional data for increased accuracy and for differentiating among the institutions and the cost and
burden of providing the data. This method was used in the dramatic changes to the Texas funding models
in 2010.
The trend in formula development in many states parallels the experience of Texas: refinement of
procedures, greater detail and reliability in collection and analysis of information, improvement in the
differentiation between programs and activities, and eventual inclusion of performance or accountability
factors. States have used different methods over time to develop their formulas for both four-year and
two-year institutions. Some states have developed their methods from the “ground up”. Many of these
formulas have been based on the statistical analysis of institutional data (i.e., regression modeling) or the
determination of an “average cost” among institutions in a state for providing a particular type of service.
Others have been based on staffing ratios and external determinations of “standard costs” or workload
factors based on national norms. The key to the process seems to be the isolation or identification of
variables or factors that are directly related to actual program costs. Isolation of variables that are
detailed, reliable, not susceptible to manipulation by a campus, and sufficiently differentiated to recognize
differences in institutional role and mission requires the collection of myriad amounts of data. Data must
be collected and analyzed in a manner that does not raise questions of preferential treatment for any
campus.
Other states have developed their formulas by borrowing existing formulas from other states. For
example, Alabama adapted the formulas used by Texas to the particular circumstances of Alabama, and
continues to modify the formulas to reflect circumstances specific to Alabama, and to incorporate judicial
interventions. Adaptation rather than development of a new formula appears to be the preferred method
because of the time and effort required to complete a sound cost study. Accounting procedures are not
9 Ashworth, Kenneth H. 1994. Formula Recommendations for Funding Texas Institutions of Higher Education. Austin, TX:
Texas Higher Education Coordinating Board.
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refined enough in some states or systems to permit the calculation of costs differentiated by academic
discipline and level of student, and to separate professorial time into the multiple work products generated
by carrying out the three main missions of most institutions of higher education: teaching, research, and
service. States continue to adapt formulas from other states because methods that work in one state may
work equally well in another at considerable savings of time and resources.
States or systems use funding formulas for a variety of reasons, including the following:
Formulas provide an objective method to determine institutional needs equitably.
Formulas reduce political competition and lobbying by the institutions.
Formulas provide state officials with a reasonably simple and understandable basis for
measuring expenditures and revenue needs of campuses and determining the adequacy
of support.
Formulas enable institutions to project needs on a timely basis.
Formulas represent a reasonable compromise between public accountability and
institutional autonomy.
Formulas ease comparisons between institutions.
Formulas permit policy makers to focus on basic policy questions.
Funding formulas also can provide for equity among institutions, depending on how the formulas are
constructed. Two types of equity are achieved through formula use: horizontal and vertical. Horizontal
equity is defined as the equal treatment of equals, and vertical equity is defined as the unequal treatment
of unequals. An example of a horizontal equity element is a formula that provides a fixed dollar amount
for one credit hour of lower division English instruction, no matter where or how the class is taught.
Texas and Alabama use this element in their instruction funding formulas. An example of a vertical
equity element in a formula is the allowance of $2.80 per gross square foot (GSF) of space for
maintenance of a brick building, but $3.20 per GSF for maintenance of a frame building.
However, formulas do have shortcomings, and there have been many heated debates over whether the
advantages of formulas outweigh the downside of use. Some disadvantages of funding formulas are the
following:
Formulas may be used to reduce all academic programs to a common level of
mediocrity by funding each one the same because quantitative measures cannot assess
the quality of a program.
Formulas may reduce incentives for institutions to seek outside funding.
Formulas may perpetuate inequities in funding that existed before the advent of the
formula.
Enrollment-driven formulas may be inadequate to meet the needs of changing client
bases or new program initiatives.
Formulas cannot serve as substitutes for public policy decisions.
Formulas are only as accurate as the data on which the formula is based.
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Formulas may not provide adequate differentiation among institutions.
Formulas may incent institutions to behave in certain ways, such as enrolling
increasing numbers of students without regard to student success.
Formulas are linear in nature and may not account for sudden shifts in enrollments and
costs.
In any event, guidelines or formulas reflect one of two computational approaches: the all-inclusive
approach, where the total allocation for a program area such as Instruction or Academic Support is
determined by one calculation; and the itemized approach, where more than one calculation or formula is
used in each budget area. Most state funding formulas (including Nevada’s) use the itemized approach.
Three computational methods have been identified under which every formula calculation can be
classified:
Rate per base factor unit (RPBF);
Percentage of base factor (PBF); and
Base factor/position ratio with salary rates (BF-PR/SR).
The rate per base factor method starts with an estimate of a given base, such as credit hours or full time
equivalent students (FTES), and then multiplies the base by a specific unit rate. Unit rates generally have
been determined by cost studies and can be differentiated by discipline, level, and type of institution.
The PBF method assumes there is a specific relationship between a certain base factor like faculty salaries
and other areas like departmental support services. The PBF method can be differentiated by applying a
varying percentage to levels of instruction or type of institution, but this is unusual. Reportedly, the PBF
was developed because of the perception that all support services are related to the university’s primary
mission (instruction).10
The BF-PR/SR method is based on a predetermined “optimal” ratio between a base factor and the number
of personnel. For example, ratios such as students per faculty member or credit hours per faculty member
are used. The resulting number of faculty positions determined at each salary level is then multiplied by
the applicable salary rate for that level and the amounts summed to get a total budget requirement. The
BF-PR/SR method also is used commonly in plant maintenance, and is the most complex of the
computational methods.
The base factors used in most formulas can be classified into five categories:
head count;
number of positions;
square footage or acreage;
FTE students or staff; and
Credit hours.
10 Boling, Edward. 1961. Methods of Objectifying the Allocation of Tax Funds to Tennessee State Colleges. Nashville, TN:
George Peabody College of Vanderbilt University.
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Square footage or acreage is used most often in the operation and maintenance of plant, whereas credit
hours, FTE students or staff, or positions are the most prevalent bases in the instruction, academic
support, and institutional support areas. Head count is used as the base unit most often in student services
and the scholarships and fellowships area.
States have also found it necessary to introduce factors that differentiate among institutions in funding
formulas because each institution, if examined closely enough, has a different mission and mix of
program offerings. Differentiation is used to recognize that there are legitimate reasons for costs to vary;
reasons include economies and diseconomies of scale, method of instruction, and class size.
Differentiation became more prevalent and more complex as accounting and costing methods improved
and reliable cost data became available.
Differentiation is especially commonplace in formulas used to calculate funding requirements for the
instruction program area. All of the states using formulas for instruction attempt to differentiate by
discipline, institutional type, or level of enrollment. Enrollment may be based on credit hours attempted
or credit hours completed. Only a few formulas in other budget areas differentiate by these three types of
factors.
Formulas may differentiate among academic disciplines (such as education, sciences, and architecture),
levels of enrollment (freshman and sophomore {called lower division}, junior and senior {called upper
division}, masters, and doctoral), and types of institutions (community colleges, baccalaureate
institutions, and research universities). Recently, some states (e.g., Alabama) have also introduced
differentiation for historically black institutions as an institutional type.
2.2 Economies of Scale and Scope
Formulas also may include factors that consider the size and complexity of the institution so that
economies and diseconomies of scale and scope may be recognized. Some higher education institutions
long have contended that their small size makes it impossible to take advantage of factors that would
reduce unit costs; or conversely, that the institution’s large size introduces diseconomies that make unit
costs higher. Similarly, institutions have argued that narrowness of offerings, i.e., being a liberal arts
college only, results in a reduction of unit costs (because of factors such as less departmental overhead
since there are fewer academic departments); while diversity of program offerings, addition of master’s
and doctoral programs, and diversity of mission cause additional costs, or diseconomies of scope. The
economics literature and research provide evidence that not only economies and diseconomies of scale
but also economies and diseconomies of scope exist in higher education.
One of the basic principles of economics is that the size or scale of operation is likely to affect the cost of
one unit of production. In higher education, an increase in the size of the institution may result in
reductions in unit costs, or cost of a full-time equivalent student; this phenomenon is called an economy of
scale. Similarly, if increases in institutional size result in increases in unit costs or the cost of a full-time
equivalent student, the phenomenon is called a diseconomy of scale. Formulas may recognize these
differences by providing a fixed cost factor such as a minimum guaranteed funding base to ensure that
smaller institutions have the necessary resources to offer a basic level of services; or by providing
differential amounts for more complex institutions.
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A typical relationship between size and cost is shown in Exhibit 2-3. As institutional size increases,
factors that appear to decrease unit cost tend to predominate until a point is reached when factors raising
unit costs tend to be predominant. The result is a u-shaped curve where the minimal point on the curve
represents the lowest unit cost. In higher education, this lowest point may actually be a range over which
the factors that keep costs down and those that drive costs up are in balance.
EXHIBIT 2-3
Hypothetical Cost Curve Between Size Of Institution
And Cost Per Student
Cost per
Student
Size of the institution
Bowen11
notes that the primary factors that drive the costs of higher education down is what he calls the
“lumpiness” of many of the resources used. For a college or university to operate at all, it must have
some faculty, a few administrative officers, some buildings and grounds, books, and equipment whether
the college enrolls five students or 5,000. These costs to operate an institution or program no matter how
many students are involved are called “fixed costs.” The cost per student for these initial overhead items
or fixed costs decreases as the number of students increases, until a point is reached when the staff and
facilities are fully employed and an additional student would require additional resources. The costs that
are added for additional students or additional outputs are called “variable costs.” “Marginal costs” are
defined as those costs associated with the recent addition or deletion of students from a program; the
terms “variable” and “marginal” costs are sometimes used interchangeably.
As the institution expands further, more resources would be added in the lumpy fashion, with costs
continuing to be spread over additional students, and unit costs again would fall. Large enrollments also
increase average class size, resulting in further economies of scale because instructors’ salaries remain the
same, but are spread over more students.
11 Bowen, Howard R. 1980. The Costs of Higher Education. San Francisco, CA: Jossey-Bass, Inc.
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Bowen also notes that the “lumpiness” of resources gives rise to three different types of diseconomies of
scale. One of these diseconomies is the rising cost of institutional coordination of larger and more
academic units within the institution. While Bowen calls this a diseconomy of scale, other economists
label this phenomenon a “diseconomy of scope.”12
Economies of scope are defined by Cohn et al as
“complementarity between outputs that results in lower per-unit costs when two more outputs are
produced simultaneously.”13
In other words, economies of scope occur when a university produces credit
hours at multiple levels and it is cheaper to produce those credit hours at the undergraduate and graduate
level together than to produce those credit hours in separate departments. Or economies of scope occur
when an institution produces multiple products with no increase in cost, as occurs when professors teach
and also produce research and public service.
A second diseconomy of scale noted by Bowen is the possible deterioration in quality as the size of the
institution increases. He calls deterioration in quality an increase in unit cost because the value of the
service decreases.
The third diseconomy of scale occurs, according to Bowen, when increasing size results in additional
recruitment expenditures and student financial aid, thus increasing unit costs.
Bowen was not the first economist to study economies and diseconomies of scale in higher education.
Early studies were completed in the 1920s, but the first studies of note were completed in the 1960s, all
showing that certain economies of scale did exist for colleges and universities.14
In 1972, the Carnegie
Commission on Higher Education determined that there was a definite relationship between size of an
institution and cost per student. For public research institutions, cost reductions occurred at the breaking
point between 5,000 and 5,500 students.15
Earlier work by the Commission had resulted in these
recommendations for optimal college/university size:
Minimum Maximum
Doctoral universities 5,000 20,000
Comprehensive universities 5,000 10,000
Liberal arts colleges 1,000 2,500
Community or junior colleges 1,000 5,00016
In his seminal work on college or university costs, Bowen concluded the following:
Large institutions spend a substantially smaller percentage of their educational
expenditures for institutional support and student services than do small institutions.
Most large institutions spend relatively less per student for plant operation and
maintenance than do small institutions.
12 Cohn, Elchanan; Rhine, Sherrie; and Santos, Maria. 1989. “Institutions of Higher Education as Multi-Product Firms:
Economies of Scale and Scope,” Review of Economics and Statistics, 71, 2 (May, 1989) pp. 284 – 290. 13 Ibid., p. 285. 14 See for example, Hungate, Meeth and O’Connell, “The Quality and Cost of Liberal Arts College Programs” in E.J. McGrath
Cooperative Long Range Planning in Liberal Arts Colleges. 1964. New York, Columbia University; Hawley, Boland and Boland,
“Population Size and Administration in Institutions of Higher Education,” American Sociological Review, 30 (April 1965): pp.
252-255. 15 Carnegie Commission on Higher Education. 1972. The More Effective Use of Resources. New York: McGraw-Hill. 16 Carnegie Commission on Higher Education. 1971. New Students and New Places. New York: McGraw-Hill.
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Large institutions spend a greater percentage of their resources for teaching than do
comparable small institutions.
Size appears to have no consistent effect on the percentages spent for scholarships and
fellowships and for academic support. However, large institutions spend relatively
less on libraries than do small institutions.17
Bowen concluded that economies of scale appear to be most pronounced for institutional support, student
services, and plant, resulting in large institutions being able to devote a larger share of their resources to
instruction. As a result, larger institutions were able to pay higher average faculty salaries than smaller
institutions could. Similarly, larger institutions had less building space per student than smaller
institutions and also employed relatively more “other staff” than small institutions.
Paul Brinkman and Larry Leslie completed a meta-analysis on 60 years of research on economies of scale
in higher education.18
The literature in the review included books, dissertations, reports, and journals
dating from the 1920s. Their review of the studies found the following:
Large economies of scale are found in expenditures for administration and operation
and maintenance of plant.
Total educational and general costs per student decrease as size increases.
Substantive size-related economies of scale are most likely to occur at the low end of
the enrollment range.
Instructional expenditures have the least reductions in unit costs related to size.
Evidence was inconclusive on whether large institutions experience diseconomies of
scale.
The extent to which a set of institutions (like a state system) experience economies or
diseconomies of scale depends on the scope and variety of programs and services
offered (i.e., economies and diseconomies of scope), salaries paid, and how resources
are used on the campus.
Institutions with between 1,000 and 2,000 FTE students can experience adverse
economies of scale.
In contrast to the meta-analytical results, using regression analysis Broomall et al. examined economies of
scale for Virginia institutions and concluded that economies of scale are not a function of the type and
size of a college or university. Moreover, no economies or diseconomies of scale or scope appeared as
complexity or size of the institution increased.19
17 Bowen, op. cit., p. 182. 18 Brinkman, Paul and Leslie, Larry. 1986. “Economies of Scale in Higher Education: Sixty Years of Research,” Review of
Higher Education. Association for the Study of Higher Education, v. 10, no. 1 19 Broomall, Lawrence W. B.T. McMahon, G.W. McLaughlin and S.S. Patton. 1978. Economies of Scale in Higher Education.
Blacksburg, VA: Virginia Polytechnic Institute Office of Institutional Research.
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Koshal and Koshal examined economies of scale and scope in higher education and concluded the
following:
The marginal cost of graduate education is greater than that of undergraduate
education.
Ray economies of scale (the expansion of all outputs) exist for comprehensive
universities. This means that increases in the size of graduate and undergraduate
programs and in research and public service programs result in reduced marginal costs.
Product specific economies of scale for undergraduate and graduate education do exist
at all levels of output.
Global economies of scope (due to complementarity among outputs like research and
instruction) exist for all public institutions. For undergraduate and graduate
instruction, both product-specific economies and diseconomies of scope exist.
Comprehensive universities can reap benefits from both economies of scale and of
scope. Large comprehensive universities are the more cost-efficient institutions.20
Dundar and Lewis examined economies of scale and scope at public universities and concluded that
average and marginal costs were highest for research outputs and lowest for undergraduate education.
Social sciences have the lowest costs; contrary to conventional wisdom that costs of instruction increase
by level, this was not found for all fields, and master’s education in the social sciences is more costly than
doctoral education. They concluded that the design of funding and tuition policies for universities should
consider the joint costs of research and public service and the economies of scope possible with joint
production. Most importantly, Dundar and Lewis concluded that economies of scale and scope exist at
departmental levels, and differ by discipline but not within the social sciences.21
In what has been called “an important advance” 22
in the study of economies of scale and scope in higher
education, Cohn, Rhine, and Santos examined three types of economies: ray economies (due to the
expansion of all outputs), product-specific economies of scale, and economies of scope. They concluded
that there were product-specific economies of scale for undergraduate and graduate enrollment and for
sponsored research funding. For institutions engaging in only small amounts of research, they found ray
economies of scale up to only 5,000 students while institutions with large amounts of research had ray
scale economies up to 25,000 students. There also were significant economies of scope among all
outputs, but especially for instruction and research. This means that the cost of producing research and
instruction together is cheaper than the costs of producing them separately. Cohn et al concluded that the
most efficient institutions are major public research universities that have both large enrollments and
substantial research enterprises.23
20 Koshal, R.K. and Koshal, M. 1999. “Economies of Scale and Scope in Higher Education: A Case of Comprehensive
Universities,” Economics of Education Review. 18, pp. 269-277. 21 Dundar, Halil and Lewis, Darrel R. 1995. “Departmental Productivity in American Universities: Economies of Scale and
Scope,” Economics of Education Review, 14, pp. 119-144. 22 Hoenack, Stephen A. and Collins, Eileen. 1990. The Economics of American Universities. Albany, NY: State University of
New York Press. p. 139. 23 Cohn, Rhine, and Santos, op. cit.
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Lastly, Brinkman summarized the available information related to costs at comprehensive universities.24
Studies he reported concluded that total expenditures per student at institutions with 12,000 full-time
equivalent students could be expected to be 22 percent lower than cost per student at an institution of
4,000 students. For master’s-oriented institutions, economies of scale appear to be maximized at 3,000 to
4,000 students, and that minimum average costs are reached at 5,000 students. Brinkman also reported
that direct costs per credit hour for doctoral instruction were, on average, 8 to 9 times as much as lower
division undergraduate costs per credit hour; master’s level 4 to 5 times as much; and upper division 1.6
to 1.8 times as much. He concluded that factors associated with changes in marginal and average costs
were size of institution, scope of services offered, level of instruction or student, and discipline.
2.3 Guiding Principles in Formula/Guideline Usage
Over time, a number of researchers in the area of higher education finance have offered their concepts
regarding desired characteristics in state higher education funding formulas. Frequently, what is offered
as the “desired characteristic” is in direct response to a perceived shortcoming of a particular state’s
funding formula or guideline.
Fourteen characteristics, listed and summarized in Exhibit 2-4 in no particular order of importance from
A to N, often tend to be in opposition to one another. For instance, the desire to have a simple-to-
understand funding formula may preclude features that might contribute to a greater degree of equity
(e.g., more detailed sub-categories to reflect institutional differences). Similarly, a formula that is
responsive to changes in enrollment levels may not be able at the same time to provide the desired level
of stability. Use of the characteristics provides an objective framework for evaluating funding policy
alternatives – both during the phase of review of the current formula and in subsequent years.
EXHIBIT 2-4
Sample Desired Characteristics of a Funding Formula or Funding Model
Characteristic Summary Description
A. Equitable The funding formula should provide both horizontal equity (equal treatment
of equals) and vertical equity (unequal treatment of unequals) based on size,
mission and growth characteristics of the institutions.
B. Adequacy-
Driven
The funding formula should determine the funding level needed by each
institution to fulfill its approved mission.
C. Goal-Based The funding formula should incorporate and reinforce the broad goals of the
state for its system of colleges and universities as expressed through
approved missions, quality expectations and performance standards.
D. Mission-
Sensitive
The funding formula should be based on the recognition that different
institutional missions (including differences in degree levels, program
offerings, student readiness for college success and geographic location)
require different rates of funding.
24 Brinkman, Paul. 1990, “Higher Education Cost Functions, “ in Hoenack and Collins, op. cit.
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EXHIBIT 2-4 (continued)
Desired Characteristics of a Funding Formula or Guideline
Characteristic Summary Description
E. Size-Sensitive The funding formula should reflect the impact that relative levels of student
enrollment have on funding requirements, including economies of scale.
F. Responsive The funding formula should reflect changes in institutional workloads and
missions as well as changing external conditions in measuring the need for
resources.
G. Adaptable to
Economic
Conditions
The funding formula should have the capacity to apply under a variety of
economic situations, such as when the state appropriations for higher
education are increasing, stable or decreasing.
H. Concerned
with Stability
The funding formula should not permit shifts in funding levels to occur more
quickly than institutional managers can reasonably be expected to respond.
I. Simple to
Understand
The funding formula should effectively communicate to key participants in
the state budget process how changes in institutional characteristics and
performance and modifications in budget policies will affect funding levels.
J. Adaptable to
Special
Situations
The funding formula should include provisions for supplemental state
funding for unique activities that represent significant financial
commitments and that are not common across the institutions.
K. Reliant on
Valid &
Reliable Data
The funding formula should rely on data that are appropriate for measuring
differences in funding requirements and that can be verified by third parties
when necessary.
L. Flexible The funding formula should be used to estimate funding requirements in
broad categories; it is not intended for use in creating budget control
categories.
M. Incentive-
Based
The funding formula should provide incentives for institutional effectiveness
and efficiency and should not provide any inappropriate incentives for
institutional behavior.
N. Balanced The funding formula should achieve a reasonable balance among the
sometimes competing requirements of each of the criteria listed above.
For this study, the presidents and Chancellor of the Nevada System of Higher Education identified a subset
of these characteristics to guide the development of a funding model. These guiding characteristics are
shown in Exhibit 2-5.
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EXHIBIT 2-5
Guiding Criteria For The Nevada Model
Characteristic Summary Description of Principles
A. Outcomes-Based The funding model should incorporate and reinforce the broad goals for the
state’s system of colleges and universities as expressed through approved
missions, quality expectations, and performance standards.
B. Mission-Sensitive The funding model should be based on the recognition that different
institutional missions (including differences in degree levels, program
offerings, student readiness for college success and geographic location)
require different rates of funding.
C. Size-Sensitive The funding model should reflect the impact that relative levels of student
enrollment have on funding requirements.
D. Adaptable to
Economic
Conditions
The funding model should have the capacity to be applied under a variety of
economic situations, such as when the state appropriations for higher
education are increasing, stable, or decreasing.
E. Equitable The funding model should provide both horizontal equity (equal treatment
of equals) and vertical equity (unequal treatment of unequals) based on size,
mission, and growth characteristics of the institutions.
F. Use of Valid and
Reliable Data
The funding model should rely on data that are appropriate for measuring
differences in funding requirements and that can be verified by third parties
when necessary.
2.4 States’ or Systems’ Funding Formulas
In 2006, 38 states or systems reported that they were using funding formulas and guidelines in the budget
or resource allocation process for public institutions, the most since 1980. The number of states or
systems employing formulas changes from year to year, since states continually adopt, modify, and drop
formulas and since what one person may consider a formula may be called by another name by another
person. For example, Louisiana typically is identified as a formula state although the person responding to
the survey used to collect these data indicated Louisiana was not using formulas. States identified as
using funding formulas in 2006 are listed in Exhibit 2-6. Exhibit 2-7 provides information on the sectors
to which formulas apply.
Although all of the southern states except North Carolina used funding formulas in the 70s and 80s, and
have been leaders in formula development and innovation, that picture changed during the last half of the
1990s. Delaware, Kentucky, Mississippi, and Virginia dropped the use of formulas in the resource
allocation or budgeting process. Instead, these states focused budget requests and the allocation process
on inflationary increases and special initiatives. Most of the other southern states modified their formulas
since 1992, and the University of North Carolina System now uses formulas to determine increases or
decreases in institutional funding requests based on changes in enrollment. Virginia developed a new
funding formula that had performance components in the 1990s.
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As the national economy has declined in the last half of the decade, state funding for higher education
also has been constricted, leading to significant changes in funding formulas. This new wave of funding
models will be discussed in Section 2.7.
EXHIBIT 2-6
States/Systems Using Formulas
In 1988, 1992, 1996 And 2006
State Using Funding Formulas
1984 1992 1996 2006
Alabama X X X X
Alaska X
Arizona X X X X
Arkansas X X X
California X X X X
Colorado X X X
Connecticut X X X X
Delaware
Florida X X X X
Georgia X X X X
Hawaii X
Idaho X X X
Illinois X X X X
Indiana X
Iowa
Kansas X X X X
Kentucky X X X X
Louisiana X X X X
Maine
Maryland X X X X
Massachusetts X X
Michigan X *
Minnesota X X X X
Mississippi X X X X
Missouri X X X X
Montana X X X X
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EXHIBIT 2-6 (continued)
States/Systems Using Formulas
In 1988, 1992, 1996 And 2006
State Using Funding Formulas
1984 1992 1996 2006
Nebraska X
Nevada X X X X*
New Hampshire
New Jersey X
New Mexico X X X X
New York X *
North Carolina X
North Dakota X X X X
Ohio X X X X
Oklahoma X X X X
Oregon X X X X
Pennsylvania X X X
Rhode Island
South Carolina X X X X
South Dakota X X X X
Tennessee X X X X
Texas X X X X
Utah X X
Vermont X
Virginia X X X
Washington X
West Virginia X X X
Wisconsin X
Wyoming X
N 36 32 30 38
* State did not complete survey; information taken from websites.
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EXHIBIT 2-7
Sectors To Which Formulas Apply
State All
All but
Differ-
ent
Research
Universities
State
Colleges/
Universities
Comm-
unity
Colleges
Voc/
Tech
College
Private
Institution
Special
Institution Other
Alabama X
Arizona X X
Arkansas X X X
California X X X
Connecticut X X
Florida X X X
Georgia X X
Hawaii X
Idaho X X X X
Illinois X
Indiana X
Kansas X X
Kentucky X X X X
Louisiana X
Maryland X X X
Massachusetts X
Minnesota X X X
Mississippi X
Missouri X X X
Montana X X X
Nebraska X
Nevada X X X X
New Mexico X X X X
North Carolina X X X X
North Dakota X
Ohio X X X X
Oklahoma X
Oregon X X
Pennsylvania X
South Carolina X
South Dakota X
Tennessee X X X X
Texas X X X X X
Vermont X X X X X
Virginia X X X X X
Wyoming X
N 8 2 18 20 20 12 2 1 4
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2.4.1 Funding Formulas for Two-Year Colleges
In many states, two-year colleges originally were governed under the auspices of state departments of
education and/or local school boards. Because of this governance structure, early funding formulas for
two-year colleges were patterned off elementary and secondary education funding formulas. Funding
generally was calculated at a dollar amount per student, with both the state and the local district
contributing to total funding. The level of local funding was based on the district’s ability to support the
college, which generally was calculated based on an equalization formula using taxable property wealth
per full-time equivalent student. Use of ability-to-pay formulas is one method of distributing funds
equitably across college districts within a state. Ability-to-pay is similar to the subtraction of different
revenue amounts from the “needs” of four-year institutions based on the amount of revenues that the
institution can generate.
When governance for two-year colleges was transferred from the local school district board (and the state
board of education) to a board for the college (and either a statewide two-year college board or other state
higher education board), most funding formulas migrated away from the “ability to pay” formulas used
for elementary/secondary education.25
Many states (e.g., Georgia, North Dakota, Nevada, Montana, West
Virginia) now incorporate funding for two-year colleges within the funding formulas used for all higher
education by differentiating by type of institution. Other states (e.g. Texas, Alabama, Arizona) have
separate funding formulas for two-year colleges, while some states (e.g., Wyoming) use funding formulas
for two-year colleges but not for the four-year segment.
The Arizona, Indiana, Kansas, Missouri, Nebraska, and Illinois community college formulas continue to
use the ability of the local community college district to support the college (as measured by local
property wealth) as a formula component. Other states include equity factors in their formulas by
recognizing variations in the cost of offering different types of educational programs and services (like
South Carolina does) and by recognizing economies of scale (e.g., North Carolina). Nevada’s two-year
colleges do not receive local “appropriations” from a property tax to support part of the cost of operations.
Several states determine the adequacy of their two-year college funding formula by comparing funding to
regional averages or to institutional peer groups. Alabama, Kentucky, and South Carolina compare
funding for two-year colleges to the SREB regional average funding for each type of college, as defined
in the SREB Data Exchange. Oklahoma uses national peer group averages to determine the adequacy of
institutional funding levels.
2.4.2 Formulas by NACUBO Classification
Practices in formula use vary significantly among the states/systems. Formula usage and identification of
“best practices” in each area are described below for each of the areas.
2.4.2.1 Instruction
This category includes all expenditures for credit courses; for academic, vocational, technical, and
remedial instruction; and for regular, special, and extension sessions. Excluded are expenditures for
academic administration when the primary assignment is administration (such as deans). Nevada includes
remedial instruction at the community colleges and Nevada State College only. Instruction is the most
25 Mullin, Christopher and David Honeyman, “The Funding of Community Colleges,” Community College Review, Vol. 25, # 2,
(October 2007), pp113-127.
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complex, and most expensive, component of an institution’s expenditures. Because of its importance,
identification of appropriate cost factors is critical to the validity of the formula development process.
Since the instruction program is typically the major component of expenditures at institutions of
higher education, formulas for this activity are often quite complex. Each of the states using formulas
explicitly or implicitly utilizes at least one formula for instruction. States provide differential funding for
activities within the instruction program to recognize differences in costs by level of instruction, among
academic disciplines, and among institutional roles and missions. Over time, formulas for instruction
have become more complex in part because improvements in cost accounting procedures have resulted in
more accurate data.
States use both the all-inclusive approach and the itemized approach in the instruction area, but the
majority use the itemized approach. Explicitly, states have attempted to distribute in an equitable manner
state funds for the instructional operations of public institutions within the state by recognizing the
equality of class credit hours by discipline and level and the differences in institutional roles and
missions. Since the formula allocations provide varying amounts based on enrollments by level and
discipline, each institution in the state may receive differing amounts for instruction and different
amounts per student from the formulas. Some of the states/systems such as Pennsylvania recognize
economies of scale in the Instruction formula by using fixed and variable costs.
Examples of two formulas for instruction follow. Student/faculty ratios by level by discipline vary
in the first sample formula, while the rate varies by level in the second.
1. Instruction funding = the sum of (the number of faculty positions per discipline times
the average faculty salary for that discipline), where the number of faculty positions is
determined by student/faculty ratios and the number of FTE students is determined by
credit hours by level.
2. Instruction funding = Base amount plus the sum of [(a rate times the number of
weighted credit hours in Discipline Group 1) (rate times the number of weighted credit
hours in Discipline Group 2) and (rate times the number of weighted credit hours in
Discipline Group 3)] where the number of weighted credit hours is the rolling three-
year average credit hours, and all academic disciplines are assigned to one of three
discipline groupings based on cost factors. A discipline may be in Discipline Group 1
for undergraduate instruction and in Discipline Group 2 or 3 for Master’s or Doctoral
instruction.
Each state that uses a formula for instruction utilizes a unique methodology. In fact, no two states
rely on the same parameters for determining funding needs for their institutions of higher education. A
common problem faced by those states with large numbers of instructional cost categories in their funding
formulas is the need to monitor the appropriateness of the classification of student credit hours by
program or discipline. Formulas with too many program levels can create a temptation for institutions to
assign their credit hour production to those program categories with the highest rate of reimbursement.
The need to audit the correct reporting of student credit hour production exists in any enrollment-driven
funding formula. However the problem grows exponentially with the level of differentiation.
In general, too much differentiation within the instructional component creates incentives for
“gaming” the formula and leads to extra administrative expense in auditing enrollment reports and
projecting future enrollment levels. For these and related reasons, some states (e.g., Florida) have refined
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their formulas in recent years to rely on a smaller number of cost categories in their instructional formula.
Other states also are evaluating the use of simpler formulas.
Nevada’s Instruction Formula
Nevada’s current formula for Instruction differentiates between the four-year and two-year
campuses. No Instruction component is included in the funding for the Desert Research Institute (DRI).
The Nevada formula uses a legislatively-approved credit hour matrix that differentiates between
high, medium, and low cost and clinical classes at the lower division, upper division, masters, and
doctoral levels. A student/faculty ratio is used to determine the number of instructional faculty required
for each institution according to the number of students projected to enroll by level of instruction and by
the relative cost of the discipline. A separate matrix is used for the universities, for Nevada State College,
and for each of the colleges/community colleges. Higher levels of instruction and higher discipline costs
are reflected by lower student to faculty ratios. Once GBC and WNC reach a SFTE level of 3,000, lower
division funding is to be the same for all colleges/community colleges. Exhibit 2-8 displays this matrix.
EXHIBIT 2-8
Student: Faculty Ratios
Lower
Division
Upper
Division Masters Doctoral
UNR and UNLV:
Clinical 8 8 8 8
High Cost 18 13 10 8
Medium Cost 21 16 13 8
Low Cost 26 22 16 8
NSC:
Clinical 8 8 8
High Cost 18 15 12
Medium Cost 21 18 15
Low Cost 26 24 18
Colleges/Community
Colleges:
Lower, TMCC
& CSN
Upper,
CSN
GBC
Lower
GBC
Upper
WNC
Lower
WNC
Upper
Clinical 8 8 8 8 8 8
High Cost 14 14 12 12 12 12
Medium Cost 21 16 21 16 21 16
Low Cost 26 25 23 22 26 25
The institutions report actual student credit hours (SCH) for the previous year by level of instruction
and by discipline, which are converted to full-time student equivalents (SFTE) by dividing the number of
credit hours by 30 for undergraduates, by 24 for masters level, and by 18 for doctoral. The percentage
distribution of SFTE enrollment by levels of instruction and discipline is calculated and the same percentage
is applied against projected enrollments. SFTE enrollment projections are based on a weighted three-year
average rolling growth rate that is applied to the current actual annual full-time enrollments. The previous
three years of the percentage of growth are weighted with the most recent year given 50 percent, the second
year 30 percent, and the earliest year, 20 percent.
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The number of faculty members required as calculated by this formula is then compared to the prior
year’s budgeted number of faculty. Any change in faculty positions are funded at (or reduced by)
established rates that are different for the two universities and NSC and for the community colleges. For the
universities and NSC, new faculty positions are funded at the mid-point of Q1 and Q2 of the academic
salary schedule for an associate professor, plus associated fringe benefits. For the community colleges, new
faculty members are funded at Rank 4, Step 10 of the academic salary schedule, plus fringe benefits.
For the colleges, new instructional positions are distributed at the ratio of 60 percent full-time
positions, and 40 percent part-time. New part-time faculty positions are funded at 60 percent of the base
salary for full-time faculty, plus associated fringe benefits.
In addition to faculty positions, the Instruction formula provides one additional classified position for
every five new instructional faculty members. Classified positions are funded at Grade 27, Step 1 of the
State’s employer paid compensation schedule, plus associated fringe benefits.
The Instruction formula also provides for operating and wage costs at a predetermined amount which
is adjusted at the inflation rate plus 1 percent. Currently, universities are funded at $7,368 per faculty FTE;
NSC at $6,141 per faculty FTE; community colleges at $5,650 per faculty FTE; and classified staff at
$2,825 per FTE for all institutions.
The instruction formula also generates equipment funds for each existing full-time faculty and
classified position. These funds are used for faculty start-up packages, instructional equipment replacement,
and other workstation replacement. For faculty, universities are currently funded at $6,387 annually per
faculty position; NSC at $5,527; and community colleges at $4,350; and all classified positions at $1,228
per position.
For new positions, equipment is calculated by a separate formula as defined by the State Budget
Division guidelines as $6,000 per new FTE faculty position and $4,000 per new classified position.
Graduate assistants at the universities and NSC and college teaching assistants at the four colleges are
provided through formula calculations. For the community colleges, $1,000 per faculty member, plus
associated fringe benefits is allocated to fund teaching assistants. For UNR, UNLV, and NSC, one graduate
assistant is allotted for every eight project master’s level student headcount enrollments, and one for every
3.33 projected doctoral student headcount enrollments. Assistantships are funded at one-half the cost of an
instructor position, plus associated fringe benefits.
In addition to all of the above calculations, a separate salary equity pool was designated to eliminate
the inequity in faculty salaries between UNLV and UNR. The pool of funds was determined by multiplying
10 percent of the FTE turnover rate by the difference in the all-ranks salary at the two institutions. UNLV
drew the equity pool funds for each faculty vacancy filled at a salary higher than the current budget for the
position. The equity pool was to be funded for three biennia, and was to result in equal salaries by the 2005-
2007 biennia.
2.4.2.2 Research
This category includes expenditures for activities designed to produce research outcomes. Explicitly,
or implicitly by inclusion with at least one other functional area, 17 states have a formula that provides
funds for the research budget area.
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Florida’s formula is complex and involves computations related to the magnitude of research
activities at each institution. The number of research positions is calculated based on a ratio by specific
department and is then multiplied by a specified salary rate. Kentucky used a formula that calculated a level
of support that recognizes differing roles and missions in research among institutions. Because different
systems have differing goals, there are no generic “best practice” research formulas. Two sample research
formulas follow.
1. Research amount = 1% of outside funding for research.
2. Research amount = 2% of the sum of the formula amounts for instruction and academic
support plus 5% of sponsored research
Nevada does not use a formula for research funding. Rather, funding is determined on an
incremental basis.
2.4.2.3 Public Service
This category includes funds expended for activities that primarily provide non-instructional services
to individuals and groups external to the institution. Alabama, Kentucky, Maryland, Tennessee, and South
Carolina were the only states who have reported using an explicit formula approach for the funding of
public service activities. In Florida, public service positions were generated based on ratios specific to
disciplines and then multiplied by a salary amount per position. South Carolina provided 25 percent of prior
year sponsored and non-general fund public service expenditures; Alabama’s funding formula was 2 percent
of the combined allocations for instruction and academic support. Sample public service formulas are shown
below.
1. Public service amount = 2% of the sum of instruction and academic support
2. Public service amount = $75,000 + 1% of instruction, or $150,750 whichever is greater
Nevada does not have a formula for the public service components of college and university
operations. However, for workstation replacements for non-formula budgets, which include Cooperative
Extension, a public service activity of UNR, $1,228 is allocated for each professional and classified FTE
position.
2.4.2.4 Academic Support
The category academic support includes funds expended to provide support services for the
institution’s primary missions of instruction, research, and public service. The area includes expenditures
for libraries, museums, and galleries; demonstration schools; media and technology, including computing
support; academic administration including deans; and separately budgeted course and curriculum
development. However, costs associated with the office of the chief academic officer of the campus are
included in the institutional support category. (NOTE: Nevada includes the costs of the chief academic
officer in the academic support category.)
To fund the library component of the academic support category, Alabama, Connecticut, Florida,
Georgia, Kentucky, Maryland, Mississippi, Missouri, Nevada, Oregon, South Carolina, Tennessee, and
Texas have had at least one formula. Texas allocated an amount per credit hour differentiated by level of
instruction.
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Standards on the size of library collections, number of support personnel, and other factors have
been developed by the American Library Association (ALA) and the Association of College Research
Libraries (ACRL). Formulas to apply these standards, like the Voight formula and the Clapp-Jordan
formula, have been developed so that institutions may determine if their library holdings meet the
minimum requirements established by professional librarians. Only four states, including Nevada, used a
library formula that would permit meeting the ACRL criteria.
However, library holdings calculated by formulas like the Clapp-Jordan are not sensitive to 21st
century libraries or information storage and retrieval. No formula or standard currently in use accounts
for the changes in resource requirements necessitated by increasing use of technology. In fact, the ALA
and ACRL standards on size of collection do not consider the use of the “virtual library” where the text of
some “books” may be accessed electronically via the Internet. These technological changes in media
availability certainly have profound impacts on library resource needs. In fact, such changes could
actually make the distinction between “libraries” and “academic computing” currently found on most
campuses irrelevant in the future. As such, the practice of having separate formulas for libraries could
become outdated. In 2010, the American Library Association issued new guidelines for funding of
academic libraries. As of this point in time, those new standards have not been incorporated into any
funding formula, although it is likely that states which have used the Clapp-Jordan or Voight formula may
change in the near future.
An example of a simple and a more complicated academic support formula is shown below.
1. Academic support funding = 5% of instruction formula calculation
2. Academic support funding = $750,000 + 15% of instruction formula calculation +
$10 per undergraduate credit hour over 50,000 credit hours + $20 per masters credit
hour + $80 per doctoral credit hour + $5 per continuing education hour
Florida, Kentucky, Missouri, South Carolina, and Texas each had at least one formula for other
components of the academic support category. South Carolina calculated an amount based on the average
expenditure per student by type of institution. Data from the most recent IPEDS surveys were updated
using the Higher Education Price Index (HEPI) to arrive at the amount per student.
Nevada’s Formula for Academic Support
Nevada’s funding formulas for Academic Support include separate calculations for library staffing,
operating and equipment, and other areas. For UNLV, UNR, and NSC, for the office of the chief
Academic Officer, base funding is provided for two professional positions and one classified position.
Additional positions are added based on the size of the faculty: 200 to 499 faculty FTE generate one
additional professional position and one additional classified position; more than 500 faculty FTE
generates two additional professional positions and two additional classified positions.
For the schools and colleges at UNLV, UNR, and NSC, base funding is provided for one
professional position (such as a dean) and one classified position. For 50 to 174 faculty FTE in the school
or college an additional professional and one additional classified position are added. More than 175
faculty FTE in a school or college generates two additional professional positions and two additional
classified positions. New professional positions for the Academic Support function are added at Q1 of the
academic salary schedule for Professor, Rank 4, on a 12-month contract, plus associated fringe benefits.
New classified positions are added at Grade 27, Step 1, of the State’s employer paid compensation
schedule, plus associated fringe benefits.
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For other Academic Support areas such as academic advisement, technology, and testing services,
a percentage of the Instruction budget is added, equal to 9.5 percent of the Instruction budget for UNLV
and UNR and 6.5 percent of the Instruction budget for NSC.
For the community colleges, the Academic Support formula is based on a fixed percentage of the
Instruction budget. For GBC, 30 percent of the first $7.5 million of the Instruction budget, and 25 percent
of any Instruction budget over $7.5 million is allotted. Once GBC reaches 3,000 SFTE, the Academic
Support funding percentages will be consistent for all the community colleges. For CSN, WNC, and
TMCC, 22 percent of the Instruction budget is allocated.
For the library, for UNLV, UNR, and NSC, staffing is determined by the number of volumes in the
library collection, adjusted by an inflation factor; 50 positions are allocated for the first 500,000 volumes.
One new position is added for every additional 16,000 volumes above 500,000. New positions generated
as a result of the formula are added at a 40:60 professional to classified ratio; that is, for every five
positions added, two are professional positions and three are classified. New professional positions are
added at the mid-point of Q1 and Q2 of the salary schedule for an Assistant Professor, Rank 2, plus
associated fringe benefits. Classified positions are added at Grade 27, Step 1, of the State’s employer paid
compensation schedule, plus associated fringe benefits.
The Academic Support formula also provides for operating costs for the libraries at a
predetermined rate, adjusted at the inflation rate plus one percent. Universities are funded at $6,260 per
FTE position for all library positions, while NSC is funded at $4,913 per FTE library position.
Equipment funds for each classified and professional FTE is provided for workstation replacement
at the rate of $1,025 for each existing professional and classified position. One-time equipment funds for
new professional and classified positions are funded at $6,000 or $4,000 per new professional or
classified position, respectively.
Under the Clapp-Jordan formula, the universities, NSC, and the community colleges add volumes
to improve library collections. For the universities and NSC, the base number of volumes is 85,000, and
to that is added 125 volumes per faculty member, 20 volumes per FTE student, 610 volumes per
baccalaureate degree program, 10,000 volumes for each Master’s program without a doctoral program,
3,750 volumes for each master’s program with a doctoral program, and 31,250 volumes for each doctoral
program. For the community colleges, using the Learning Resources Center Standards for College
Libraries, community colleges are allotted 32,125 volumes for student FTE enrollment under 1,000; a
total of 55,250 volumes for student FTE enrolment between 1,000 and 3,000; a total of 79,100 total
volumes for student FTE enrollment between 3,001 and 5,000’ and 100,100 total volumes for student
FTE enrollment between 5,001 and 7,000. For each 1,000 student FTE enrollment over 7,001 an
additional 12,890 volumes are allotted.
The universities and NSC are given an annual acquisition rate of 4.3 percent of total collections,
while the colleges/community colleges are allotted 5.0 percent at an average cost per volume of 118.
2.5.2.5 Student Services
This expenditure category includes funds expended to contribute to a student’s emotional and
physical well being and intellectual, social and cultural development outside of the formal instruction
process. This category includes expenditures for student activities, student organizations, counseling, the
registrar’s and admissions offices, and student financial aid administration.
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The student services formulas used by Alabama, Kentucky, and Texas provide a different amount
per head count or FTE student. As the size of the institution increases, the rate per student decreases to
recognize economies of scale. The formula implicitly does this by adding an amount per weighted credit
hour to a base. Such a calculation inherently recognizes economies of scale. South Carolina used a flat
amount per student, determined as the average IPEDS expenditure, updated by the HEPI. No economy of
scale factor is included. Two sample student services formulas follow, both including consideration of
economy of scale.
1. Student services funding = $395 per student for the first 4,000 headcount + $295 per
student for the next 4,000 headcount + $265 per student for all students over 8,000
headcount.
2. Student services funding = Base funding of $2,345,585 up to 4,000 headcount + $282
per student from 4,001 to 8,000 headcount + $255 per student over 8,000.
Nevada’s Student Services Formula
Nevada’s funding formula for Student Services provides funding based on the combined headcount
and SFTE enrollments. The existing combined number of FTE positions are subtracted from the formula-
generated positions to determine the number of new positions. New positions are distributed according to a
60:40 ratio of professional to classified positions; that is, for every five new positions, three would be
professional and two classified. Professional positions are added at the mid-point of Rank 2 on the
administrative salary schedule, plus associated fringe benefits. Classified positions are added at Grade 27,
Step 1, of the State’s employer-paid salary schedule, plus associated benefits.
New positions are determined by the following:
If the combined headcount and SFTE is equal to or less than 10,000:
Universities divide by 200;
NSC divide by 275
CSN,TMCC, and WNC divide by 350
Plus:
If the combined headcount and SFTE is greater than 10,000:
Universities divide by 350
NSC divide by 375
CSN,TMCC, and WNC divide by 400
For GBC:
If combined headcount and SFTE is equal to or below 4,500, divide by 210
Plus If combined headcount and SFTE is between 4,501 and 10,000, divide by 275
Plus If combined headcount and SFTE is between 10,001 and 25,000, divide by 375
Plus If combined headcount and SFTE is above 25,000, divide by 425.
The formula provides additional positions for Student Services based on one additional position for
each 100 students residing in dormitories.
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In addition to these calculations, Nevada’s Student Services formula has a unique component:
funding to cover compliance costs associated with the provisions of the Americans with Disabilities Act
(ADA). Institutions receive $1,000 for each student with a documented disability. This is a “best practice”
and should be emulated by other states.
In addition to the components listed above, the Student Services formula also provides in a manner
consistent with the Instruction and Academic Support formula methodologies, funding for operating and
wage costs, workstation replacement, and new equipment for professional and classified employees.
2.4.2.6 Institutional Support
This category includes expenditures for the central executive level management of a campus, fiscal
operations, administrative data processing, employee personnel services, and support services. Alabama,
Mississippi, South Carolina, and Tennessee multiplied a specified percentage by all other E&G
expenditures to calculate institutional support needs. Kentucky included some differentiation and a base
amount to recognize economies of scale and complexity of operation, and Texas multiplied a specified
rate by a measure of enrollment to determine institutional support amounts.
Most institutional support formulas recognized fixed and variable costs by including a base amount
and a specified amount per student or percent of base. Examples of “best practices” institutional support
formulas are shown below.
1. Institutional support = base amount + 15% of total E&G budget (excluding
institutional support)
2. Institutional support = 11% of total E & G formula amount (excluding institutional
support) for institutions with more than 8,000 headcount students or 15% of total E &
G formula amount (excluding institutional support) for institutions with less than
8,000 headcount students.
Nevada’s Institutional Support Formula
Nevada’s formula for Institutional Support follows one of the best practices formulas by
multiplying a percentage of each institution’s operating budget (less institutional support) including all
applicable appropriations such as the School of Medicine, Agriculture Experiment Station, Law School,
or Dental School.
For UNR and UNLV, institutional support is equal to 15 percent of the first $25 million plus 10
percent of the second $25 million, and 7.5 percent of any operating budget over $50 million. For NSC,
institutional support is equal to 15 percent of the first $20 million in expenditures, plus 10 percent of the
second $20 million, and 7.5 percent of any budget over $40 million. For CSN and TMCC, the allocation
is equal to 15 percent of the first $17.5 million, while for GBC and WNC, the percentage is equal to 17
percent of the first $17.5 million; for all four colleges, 10 percent of the next $17.5 million is added, and
7.5 percent for those amounts above $35 million. Once GBC and WNC reach 3,000 SFTE, funding
percentages will be consistent with those of CSN and TMCC.
In addition to these amounts, the Institutional Support formula provides workstation replacement at
$1,228 for each existing employee, similar to the other functional areas discussed above.
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2.4.2.7 Operation and Maintenance of Physical Plant
This category includes all expenditures for current operations and maintenance of the physical
plant, including building maintenance, custodial services, utilities, landscape and grounds, and building
repairs. Not included are expenditures made from Plant Fund accounts (for items such as building
construction and major renovation, purchase of lands, etc.), or expenditures for operations and
maintenance of the physical plant component of hospitals, auxiliary enterprises, or independent
operations.
Because the physical facilities of colleges and universities are quite complex, and each is unique,
funding formulas for the operation and maintenance of the physical plant may be very complex. All of
the states (except Montana) that reported using funding formulas provide state resources for plant
operations through a formula. Connecticut, Oregon, South Carolina, and Texas use multiple formulas to
calculate detailed plant needs. These complicated methods differentiate among types of building
construction, usage of space, and size of institution. Differences among buildings on each campus are
recognized, and the unequal costs of maintaining, cooling, heating, and lighting each building are built
into the formulas.
On the other hand, some states provide a flat dollar amount per gross square foot of building space.
A plant formula that uses this rate per base factor method has the advantage of being simple and easy to
calculate. However, unless the dollar amount per square foot is differentiated by type of building
construction (i.e., one rate for frame buildings, another for brick or masonry, and a third for steel),
legitimate differences in maintenance costs are not recognized.
Examples of the more complex formulas for plant operations follow. Although this set of formulas
is more detailed than a simple rate per gross square foot, it recognizes that there are important differences
in a campus’ physical facilities that impact on cost.
1. Plant funding = the sum of Building Maintenance + Custodial Services +Grounds
Maintenance + Utilities
Where: Building Maintenance = a maintenance cost factor times the replacement cost
of the building, and the maintenance cost factor varies by type of construction and
whether or not the building is air-conditioned;
Custodial services = square footage divided by the average square footage maintained
by one person per year times a salary rate;
Grounds maintenance = rate times the number of acres maintained; and Utilities =
actual prior year expenditures, adjusted for inflation and other cost Increases.
2. Plant funding = $4.17 times the number of category I GSF space + $3.44 times the
number of Category II GSF + $5.54 times the number of health care GSF + utilities +
$2,267 per acre maintained + lease costs – 25% of indirect cost recovery funding
One of the problematic issues in plant funding formulas is the decision related to which buildings
and areas of campus the state should provide funding. Texas, for example, includes within the formula
only the square footage and acreage of buildings and grounds that relate to instruction, research, and
public service (or E & G buildings). When Arizona had a formula for plant renewal for the universities,
that formula excluded research buildings constructed with private funds even though those buildings
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would be considered “E & G” buildings by other states. Some states include buildings and grounds used
by intercollegiate athletics, while others exclude these facilities as “auxiliary.”
Another issue related to plant funding is whether to include funding for building renewal within
the operating budget formulas. Texas includes an amount equal to a percentage of the replacement cost of
the building, where the percentage varies by type of building. On the other hand, Arizona has a formula
for the universities that allocates a percentage equal to the replacement cost of the building, but the
funding is included in the capital budget appropriation, not the operating appropriation, and is placed in
the plant fund portion of the universities’ budgets (when this was funded). Arizona’s community colleges
also had a building renewal formula which has been suspended for the last few years. From a different
perspective, Maryland does not place any funding for building renovation in the college and university
budgets but funds all building renovation and major maintenance from the budget of the State Department
of Planning and Construction.
Nevada’s Formula for Operation and Maintenance of Physical Plant
Nevada’s methodology for funding physical plant operations and maintenance includes both
formula components and non-formula components. Allocations for utilities, insurance, and rental or lease
costs are not formula driven and are budgeted separately based on consumption, rate changes, contractual
agreements, and addition or subtraction of any facilities. The formula components include custodial,
building maintenance, supervisory and technical personnel, and grounds maintenance personnel. Funding
is provided for professional and classified positions, general operating costs, equipment for new positions,
and workstation replacements. Funding level is determined by the gross maintained square feet of space,
number of improved acres, an average cost per square foot of space, and the age of the buildings.
The formula generates one new position for every 10,500 gross square feet of maintained space at
an institution, with a 10 percent adjustment to building maintenance and services positions to provide
additional funding for the increased costs of maintaining older buildings (over 25 years old). New
positions are distributed across types of personnel by allocating 42.86 percent of total positions as
custodial at Grade 21, step 1, plus fringe benefits; 42.86 percent of total positions as maintenance at
Grade 31, step 1, plus fringe benefits; and 14.28 percent of total new positions as professional/technical
funded at the midpoint of Rank 2 for UNLV, UNR, and NSC and at Grade 7 (colleges) on the
administrative salary schedule, plus fringe benefits. A new grounds position at Grade 22, step 1, plus
fringe benefits, is allocated for every 4.5 improved acres.
For general operating costs of the plant, $1.02 per gross square foot of maintained space is allotted,
with $1.28 allocated for gross square footage in buildings over 25 years old. For workstation replacement
and new equipment for professional and classified employments, funding is provided in a manner
consistent with other functional areas.
2.4.2.8 Scholarships and Fellowships
This category encompasses all expenditures for scholarships and fellowships, including prizes,
awards, federal grants, tuition and fee waivers, and other aid awarded to students for which services to the
institution are not required.
Only Kentucky, Maryland, Mississippi, Montana, and Oklahoma calculated an allocation for
scholarships and fellowships. One reason for the presence/absence of a formula here is whether the state has
a robust statewide student financial aid program. In each case except Oklahoma, which calculated the
amount as a dollar value times the number of FTE students, the formula amount was calculated as equal to a
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percentage of tuition revenues. These approaches all provide horizontal equity but fail to provide vertical
equity in that neither the cost to the student or the institution nor student’s ability to pay are considered in
the formula. Consequently, there really is no “best practices” example of a formula for this program area.
Two examples of scholarships and fellowship formulas are given below.
1. Scholarships and fellowships amount = 10.5% of estimated income from undergraduate
student tuition and fees.
2. Scholarships and fellowships amount = amount times the number of full-time equivalent
students
Nevada does not have a formula for scholarships and fellowships.
2.4.2.9 Revenue Components
There are two sides in the calculation of funding formulas for higher education: the needs of the
institution, and the resources to fund those needs. Many of the states that use funding formulas in the
resource allocation process calculate the need to be funded only by state revenues. Others calculate a total
resource need that is funded by a combination of state and institutional resources. Institutional resources
may be tuition and registration fees, tuition and all fees, or tuition/fees and other institutional resources
such as investment income. Nevada’s formula calculates a combined resource need.
Where the resources to fund needs include tuition or other institutional revenues, the amount of
those institutional resources may be called a “revenue deduction component.” The most common
calculation of the revenue deduction component is a percentage or all of non-resident tuition and fees.
Alabama’s revenue deduction was based on the weighted average credit hour charged to full-time
students. Each institution charges a different tuition, so the average tuition charge per weighted average
credit hour across all campuses was calculated and then multiplied by the number of credit hours. For
historically black institutions, the amount deducted was equal to 90 percent of the actual weighted credit
hour charges.
Mississippi deducted a percentage of the total calculated by the formula, with the percentage
varying by sector. Georgia deducted not only all unrestricted tuition and fee revenues but also certain
other unrestricted revenues. Kentucky and Tennessee deducted an amount equal to a tuition rate times
enrollment, plus a percentage of investment income. West Virginia deducted only tuition revenues
generated by a higher percentage of non-resident students than average for each institution’s peer group.
South Carolina deducted an amount equal to non-resident full-time student enrollment times the
“cost of education,” up to total non-resident tuition and fee revenues received; and resident tuition and fee
revenues equivalent to 25 percent of the “cost of education.” In this deduction step, a calculation is made
to determine undergraduate and graduate “cost of education,” defined by a formula unique to South
Carolina. State law requires that non-resident students pay at least the full cost of education, which
results in the deduction on non-resident fees up to the cost of education. Institutions are permitted to
retain any non-resident revenues above the calculated amount to encourage institutions to charge non-
residents higher amounts to keep resident tuition and fees as low as possible. For resident students, the
South Carolina Commission on Higher Education has interpreted the state policy of low tuition to mean
that state residents pay 25 percent of the cost of education determined separately for undergraduate and
graduate students. If total resident tuition revenues exceed 100 percent of the calculated “deduction”
amount, then the institution may retain the first 10 percent of the excess, but all amounts over 110 percent
of the calculated amount are deducted from the institution’s allocation. In South Carolina, institutions
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charge different tuitions, and have differing costs of education; consequently, the deduct amount must be
calculated for each institution. Institutions have been critical of the deduction since the formula has not
been fully funded for some time, and tuition has increased to supplant state revenues insufficient to meet
the institutions’ “needs” as calculated by the funding formula.
Nevada’s Revenue Component
Nevada’s formula calculates an amount of need that is funded by a combination of state and
institutional resources. Non-resident tuition and fees and varying percentages of resident registration
fees, as well as certain other revenues including investment income, are used to fund institutional needs.
2.5 Emerging Trends in Formula Design and Usage
As indicated at the beginning of this section, there has been a constant evolution in both the design and
usage of funding formulas and guidelines during the 60+ years that they have been in use. Some of the
major trends are listed below:
More Detailed Categories. One long-term trend has been the development of more detailed guideline
categories. Within the instruction component, for example, there has been a tendency toward the use of
more discipline categories, more levels of instruction, and separate add-on rates for non-personal services
expenses. As discussed earlier, however, some states have found that adding more complexity in their
formula has had adverse results.
Greater Use of Non-formula Categories. As a result of the increasing scale and complexity of state
systems of higher education, there has been a greater use of non-formula categories as a supplement to
formula/guideline calculations in recognition of the fact that the formula approach may not be adequate to
meet the needs of some programs and activities (e.g., unique or specialized academic and administrative
programs).
Use of Formulas During Times of Budget Constraint. During the early 2000s, most states experienced a
time of budget constraint or reduction. Higher education budgets, as one of the largest non-mandatory
components of state budgets, were similarly constricted, and faced a period of severe cuts in many states.
During the first decade of the 21st century, funding formula usage declined across the nation. States
protected base budgets as much as possible and eliminated the use of funding formulas. Because college
and university enrollments are counter-cyclical (that is, when the economy experiences a downturn,
enrollments go up), many colleges and universities are faced with increasing enrollments with fewer state
resources to serve students. Consequently, tuition and fees escalated sharply, and there was less reliance on
enrollment driven funding formulas to provide college and university funding.
When state resources increased in the mid 2000s, states appeared to return to the use of funding formulas as
a method to distribute available resources equitably, or to calculate adequate resources. As state budgets
have become constricted again, college and university budgets again will be restricted, causing tuition and
fees to escalate. Missouri and Michigan have discontinued use of their formulas during this budget crisis.
Increasing Focus on Quality and Performance. In response to growing public concerns over
accountability and quality, some states have begun to implement funding mechanisms, either implicitly or
explicitly, based on institutional performance. This shifts the focus from equity and adequacy in funding to
outcomes achieved with the funding received. This trend is discussed more fully below.
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2.6 The New Wave of Funding Formulas in 2010
As the national economy went into a period of recession in the last half of the first decade of the 21st
century, state appropriations for higher education declined, and in some cases, declined more than 20
percent. Because higher education enrollments are counter-cyclical, enrollments increased at the same time
that state appropriations decreased, putting significant pressures on institutional budgets.
At the same time, there was a national focus on performance, and in increasing the numbers of college
“completers” as a means of improving the economy. From the White House to state houses to foundations
such as the Bill and Melinda Gates Foundation and the Lumina Foundation, the demand was made for
increased graduation rates, at lower costs for students, and at a lower cost to taxpayers. The economic crisis
of the states led to demands for graduation of more students, with higher quality educations, more
efficiently, and more quickly.26
This shift in focus away from the “needs” of the college or university to allocation methods that are
student-centered, or based on measures of “success,” is a sea change in college and university formula
funding. Measures of success in this case relate to student success and institutional success in meeting the
needs of the state or local community. In this time of financial crisis, there appears to be a much greater
recognition of the fact that higher education is a major driver of the economy and that the state and local
community need higher education to provide educated citizens with their greater earning power and ability
to pay more in taxes, as well as the other benefits of higher education, including the transfer of knowledge.
Policymakers appear to believe that higher education budgets are not aligned with state or local priorities,
and want institutions to produce “graduates” in high-demand fields like nursing or teaching.
Some of the new measures in the new wave of funding formulas may sound like the old measures:
graduation rates for example used to mean the number of full-time first-time freshmen who complete within
150 percent of the traditional time to degree (i.e., six years for a four-year institution, and three years for a
community college). The new measure of “graduation rate” includes students who take longer because of
their part-time status, or adults who have other responsibilities and are not “first-time” nor “full-time.” The
new measure may be called “completions” and refers to not only graduations, but certificates,
apprenticeships, and completion of the student’s plans, which may be 12 hours of a computing
programming strand or qualifying for a teaching certificate, or some other credential.
The new funding models reflect the needs of the state and its citizens, not merely the needs of the institution.
Instead of additional funding to educate more students and maintain quality, the economic crisis in states has
led to reduced funding to educate more students, and still maintain quality. This has been called the
“upending of conventional ways” that are “out-of-touch with economic and demographic realities.”27
Instead of funding based on the level of resources needed to maintain the “market basket” of courses,
programs, and degrees, given the make-up of the student body, the new funding mechanisms shift to
funding based on results as measured by course completions (not enrollments), degrees or other
“completions” as mentioned above, and other measures of institutional success in meeting the state’s and the
students’ needs.
26 Albright, Brenda. 2010. “Reinventing Higher Education Funding Policies: Performance Funding 2.0 – Funding Degrees” paper
for the Making Opportunity Affordable Initiative of the Lumina Foundation. 27 Ibid, p. 1.
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This new paradigm may be called “performance funding,” with a twist. Performance funding is not new to
higher education – some states have been using performance funding to incent certain behaviors for over 30
years. States that had model performance funding under the old methodologies as described in Section 2.4
above include Florida, Missouri, Ohio, and Tennessee. The new methodology does not do away with the
underlying principles of equity, responsiveness, or adequacy, but rather calculates the amount of funding by
including some different variables. The new methods have state goals as an important component, but give
institutions flexibility in reaching the goals. A small proportion of the overall budget is allocated based on
performance, but measures consider the differences between institutions and their students. These new
models are phased in over time, to give institutions time to change and realign their priorities.
States adopting new models have taken their long-standing formulas and adapted those formulas to
emphasize results (such as graduation or course completions) and cost-effectiveness. In Ohio, for example,
the measure of “enrollment” has moved away from the number of credit hours in which students are
enrolled at the beginning of the semester to the number of credit hours for which students successfully
complete the course. The weighting of the credit hours, remains the same to recognize differences in the
costs of providing courses in different disciplines and at different enrollment levels (undergraduate,
graduate). Texas has proposed to do the same – calculate credit hours at course completion rather than
enrollment. Other calculations in the funding model in Ohio and Texas remain the same, with calculations
for student services, academic support, physical plant, etc.
There is some concern on the part of faculty that counting only successful completion of a course will lead
to grade inflation and pressure to graduate unqualified students. These are real concerns, as is the concern
that responding to state priorities that change results in trying to hit a moving target, making it impossible
for institutions to be “successful.”
Most states using course completion credit hours are funding performance at the margins, that is, only a
small proportion of funds are allocated based on performance. South Carolina’s performance funding
system failed because it was based on 100 percent of the funds, and was too complex. Other performance
funding systems have failed when the political support from the governor or legislature changes, and state
priorities change. Term limits and legislative turnover also were blamed for the failure of the South
Carolina and Missouri performance funding systems.
Exhibit 2-8 provides a comparison of the new paradigm of funding formulas in six states: Indiana,
Louisiana, Ohio, Tennessee, Texas, and Washington (community and technical colleges only). Each of
these states a new paradigm funding model at some point in the resource allocation process. Each state
considers its funding model to be performance-based, although performance may have different names.
Each state developed its funding model based on a set of guiding principles that were linked to a state
master or strategic plan and involved and received support of the governor, key legislators, and other
stakeholders.
The Texas and Ohio formulas are based on the “old” or traditional funding formulas that had been in use for
many years, in which credit hours weighted by varying factors related to the discipline and level, are
multiplied by a cost factor to determine the amount for Instruction. The difference in the new formula is
that the credit hours are credit hours completed, not credit hours attempted or enrolled. Ohio and Texas are
phasing in the new formulas and have hold-harmless factors in effect for the next biennium.
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EXHIBIT 2-8
New Paradigm Funding Models
Indiana Louisiana Ohio Tennessee Texas Washington
Year began performance funding 2003 2008 1980s 1979 1990s 2007
Guiding principles yes yes yes yes yes yes
Linked to state master plan yes yes yes yes yes yes
Basic Formula 7 performance based funding formulae:
credit hours enrolled
with 65% of the marginal increase in
approp. based on
performance indicators; starting in 2009, phase
in to completed credit
hours - in 2010, 90% of enrollment $ on
attempted, 10%
completed; by 2014 100% on completed;
change in total degrees
awarded, change in # of
on-time degrees; low
income # degrees;
6 parts in 2 components:
instruction cost by
discipline by level by type of inst; O&M
based on APPA cost
per GSF adjusted by FTES; IS and SS by %
of core, research, and
O&M; research by match of 50% of
federal $; completers
based on more degrees, sp. Fields,
Pell, and other;
workforce programs
that meet state needs
separate for univ, regional, and cc: univ
main and regional:
course cr. Hrs completed at main -
phase-in at reg'l, ,
weighted by level and discipline, with extra
for at-risk, multi-yr
average phased in slowly, set asides for
doctoral and medical;
99% hh in 2010, 98% hh in 2011; cc:
enrollment, student
success, institutional
goals, enrollment in
course averages for last
6 yrs. adjusted for student fees, by
discipline extra wts for
STEM; success component starting in
2011 at student success pts - 15, 30 cr hrs;
remedial, degrees or 45
cr hrs, 5 cr hrs math, high school enrolled,
transfers, with 3 yr.
average.
changed enrollment base of 3-yr rolling
average of fall
enrollment; = 60% of formula with
incentives focused on
inputs and performance = 10% of
funding; now focuses
on outputs with more variables; base +
"points" times average
SREB salary by inst. Type+ performance
funding
cc: 90% on attempted contact hrs with a
matrix of 26
disciplines, 10% on momentum pts, with
special amounts for
critical fields; technical and state
colleges: momentum
pts and attempted hrs with wts for
disciplines; univ (non-
med): instruction and operations based on
completed cr hrs, with
teaching exp
supplement and small
inst. supplement
phased in over 4 yrs. ; medical: headcount by
program wts by base $
+ research enhancement+
mission specific
base budget, plus $ for each momentum point
in 1st yr; then base
adjusted by increase in momentum points
from previous year
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Chapter 2
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EXHIBIT 2-8 (continued)
New Paradigm Funding Models
Indiana Louisiana Ohio Tennessee Texas Washington
Performance Funding 15% of core state
funding phased in; since 2003, 7% of total
funding; in 2009, 100%
of new $; for 2009-11, about 2% of all $,
increasing
phased in 10% of funding
phased in since '80s; 3 components -
institutions, students,
faculty; only institutions funded in
1st phase; then student
incentives
outcomes weighted
and linked to institution's mission
measures of student
success funding at 100% of growth
momentum points,
phased in over 5 years
Performance Indicators increase in number of
degrees $5,000 per bac,
$3,500 per aa; completion on time -
change funded at same
as degrees; number of at-risk students same as
degrees awarded to Pell
recipients; community college transfers $875
per FTE for cr hrs
transferred from VU or
IT; , and for tech:
provision of non-credit
workforce training
completers overall,
completers in sp.
Fields, at-risk completers, graduation
rates, cc transfers,
course completions, adult (25+)
completers, grad/prof
completers; for cc: remedial completions,
pass math, 15 cr hrs,
30 cr hrs, job
placement, certificate,
licensure pass rate
course completions,
degree completions,
sponsored research; lower tuition at access
campuses, decreased
time to ug degrees, increase in non-credit
job-related training
with specific reg'l needs given wts up to
5%of funding for cc
degree attainment,
transfer activity,
student retention, time to degree, research,
first time students, etc.
based on "points"
momentum points,
course cr hrs
completed
4 categories of
momentum points:
first yr retention (15 cr. Hrs.; 30 cr. Hrs.);
45 cr hrs.; completing
college level math (5 college level math
hrs); building toward
college level skills (remedial math;
remedial English, pass
standardized test); and
completions (degrees,
certificates,
apprenticeship training)
Incentive funding yes included in formula
components
"challenges" separate from
performance and base
funding
for medical schools incentives are the $ for
momentum points
Incentives based on federal
research , funded at
$10M; now linked to performance indicators;
2-yr transfer incentive;
non-credit "eco-devo" incentive new formula
50% of federal
research $; $ for
workforce programs;
research funding;
special needs of region
linked to state plan 1.28% of research
funding
$500,000 for student
achievement rewards;
asked for $7M for 2009-11
Used in times of budget cuts yes: better performance
meant lower cuts
yes, but differently for
increase, stable, and
decrease
yes ? not yet yes
Support of governor and legislature yes yes yes yes yes yes
support of business community yes yes yes yes yes yes
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Chapter 2
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2.6.1 Indiana
In Indiana, the funding method is being restructured to one that focuses on results, such as graduating more
students on-time, successfully transferring students, increasing federal research dollars, and completing
credit hours. Indiana’s formula provides 65 percent of the marginal increase in appropriations to be based
on performance, phasing in to completed credit hours rather than attempted hours. In 2010, 90 percent was
based on attempted and 10 percent on completed hours. By 2014, 100 percent will be based on successfully
completed hours. Also, by 2014, all new appropriations will be based on the performance factors.
Currently, Indiana also is providing a “capitation grant” which can be either a decrease or an increase in
funding, based on the change in total degrees awarded to in-state students or in the on-time graduation of
(full-time, first-time) in-state students from one year to the next, of $5,000 per baccalaureate degree and
$3,500 per associate degree. In addition, because of a perceived state need to increase the number of low
income graduates, an additional $5,000 per baccalaureate degree and $3,500 per associate degree is earned
for an increase in the number of degrees to low-income graduates, where “low income” is measured by
being a Pell Grant recipient.
Indiana also provides incentive funds for both the college and university who transfer or receive transferred
credits. Another incentive fund provides a 75 percent state fund match for sponsored federal research
dollars, although the legislature did not provide funding for this incentive in 2010. A third incentive fund
provides resources to ITCCI and VU to expand non-credit workforce instruction. All of these performance
and incentive funds in Indiana make up about 10 percent of all state appropriations to Indiana’s public
colleges and universities.28
2.6.2 Louisiana
In Louisiana, the funding formula is designed for the equitable distribution of limited dollars. However, pay
for performance has become the dominant topic, and a portion of funding has been allocated to performance
measures and to more accurately base funding on the role, scope, and mission of institutions. At the same
time, fiscal demands have reduced funding to higher education. The new revisions to the formula drive
improved performance by measures of progression from one year to the next, completion, time to degree,
and fulfilling state needs. In addition, the new formula equalized funding for associate degree and lower
division course work, moved to end of semester credit hours completed as the basis of “enrollment,” and
established performance measures for each institution.29
For the 2010-11 year, 75 percent of funding was distributed based on the traditional, equity-based formula
and 25 percent based on performance. The formula has two parts, cost and performance, where the cost
portion has three components: instruction, general support, and plant operations; and the performance piece
also has three components: student access and success, articulation and transfer, and competitiveness and
workforce. In the cost components, amounts per credit hour are determined based on level and discipline of
credit hours. For general support, a percentage of instructional costs depending on the SREB averages by
type of institution is used. For physical plant, amounts per gross square foot (GSF) are allowed, depending
on a calculation of the space the institution should have. These amounts are summed to get the cost
component. State funding of the cost component is set equal to the SREB average percentage support by
type of institution, plus 5 percent.
28 Indiana Commission for Higher Education, “Final Report on 2009-11 As-Passed Higher Education Budget,” Indianapolis,
August 14, 2009. 29 Louisiana Board of Regents, Learn More, Earn More, Be More: The Formula for Enriching Louisiana, paper presented to
LAIR, August 4, 2010.
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For the performance components, the count of the number of degrees awarded, undergraduate degrees
awarded to individuals who are over 25 years old, and degrees awarded to minority and Pell Grant recipients
is determined for each institution, and are weighted. For the articulation and transfer component, a count is
made of the number of students transferring from a two-year to four-year institution with equal incentive
given to the transferring and receiving institution. For the competitiveness and workforce component, the
number of completers in health professions and STEM disciplines are counted. In addition, the three-year
average of federal funding for research and development is calculated.
Percentages of the total performance pool are assigned to each component, and the total performance
funding is then allocated to each institution.
2.6.3 Ohio
Ohio began its performance funding in the 1980s, and has recently modified its traditional performance
funding model to the new paradigm of funding based on course completions, graduates, and goals aligned
with the statewide plan. During the 20th century, Ohio had a number of performance-based incentives (called
“Challenges”) as components of its funding model: Access Challenge, Success Challenge, Economic
Growth Challenge, and Jobs Challenge. Total funding for the challenges equaled about 10 percent of total
state appropriations. Success of the performance funding of the 80s and 90s led to new changes in 2010.30
Ohio’s new model was mandated by the legislature and contained explicit goals for Ohio: enroll and
graduate more Ohioans, increase state aid, improve efficiency, lower out-of-pocket costs for undergraduates,
increase participation and success of first-generation students, and increase participation and success by
adult students. As a result, there has been a major shift in the funding model to success-based formulas, one
for the university main campuses, one for regional campuses, and one for community colleges, all of which
were endorsed by the Governor and approved by the Ohio legislature.
The model for university main campuses shifted from enrollment based calculations to course and degree
completions, using a three-year average, weighted by discipline and level, and adjusted for the costs of at-
risk students. The degree completion component is being phased in slowly, as are hold harmless
adjustments to course completion from enrollment. Set-asides were made for doctoral and medical
education. For university regional campuses, the shift to course completion also is being phased in over
time, although the plan is to add the degree completion component in two years, to allow regional campuses
to adjust their missions.
For the community colleges, the funding model consists of three components: an enrollment component, a
student success component, and an institutional goals and metrics component. In addition, each college
received an amount equivalent to the FY2009 Access Challenge and Tuition Subsidy allocation. The new
formula will be phased in over several years. Community college receive extra funds for STEM
enrollments and graduates.
The student success component is based on “success points” which in the Washington, Tennessee, and
Texas models discussed in the remaining sections are called “momentum points.” Success points are
intended to measure the significant steps that students take toward higher education achievement.31
Points
are counted or earned at each institution for earning the first 15 semester credit hours, the first 30 semester
credit hours, completing remedial credit hours, completing an associate degree or 45 credit hours, earning
30 Petrick, Rich, “Funding Based on Course Completions: The Ohio Model,” Ohio Board of Regents, April 22, 2010. 31 Ohio Board of Regents, “Methodology for Allocating State Share of Instruction, Community Colleges,” downloaded from
Ohio Board of Regents web site.
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Chapter 2
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the first 5 credit hours of college level mathematics, being dually enrolled, or transfer to a university. The
three-year average is used to calculate each community college’s share of student success funding.
Amounts are prorated to ensure that each institution does not lose a disproportionate share of funding in any
one year.
In addition, for the community colleges, five percent of funding was set aside for meeting specific regional
or community needs. Each institution negotiates with the chancellor to determine if it has met the criteria to
receive these funds.
2.6.4 Tennessee
Tennessee has used performance funding since 1979, and had set aside 5 percent of funding for
performance. The prior funding model was linked to the Tennessee Master Plan, and focused attention on
student retention, enrollment of adult students at community colleges, research funding, and enrollment.
Approximately 60 percent of the traditional formula was enrollment-driven and the incentive or
performance factor was heavily focused on inputs.
In 2010, the formula was redesigned to focus on outputs, with broad agreement on the activities and
outcomes higher education ought to pursue. The new formula strengthened links to the master plan,
enhanced incentives for student retention and research, and focused on productivity linked to each
institution’s mission. Outcomes such as degree completion, transfer, retention were identified and data
compiled. Points are awarded for those outcomes, weighted by the institution’s mission. For example, for a
university, the number of bachelor’s degrees, graduation rate, time to degree, research expenditures, number
of first-time students, number of sophomores, juniors, and seniors, doctoral degrees, masters degrees, adult
student enrollment, and transfers in from community colleges, were counted, awarded points, and weighted
to come up with a total number of points. These points were then multiplied by the average SREB salary for
the type of institution, added to an amount for fixed costs, and added to performance funding to get the total
allocation for the institution. For community colleges, the outcomes included the number of associate
degrees, certificates, job placements, remedial and developmental success, first time students, adult student
enrollment, and transfers out to a university.
This formula will be phased in over several years. This formula recognizes that each institution has a fixed
cost, which is unrelated to the number of students enrolled. It will be interesting to see if the formula has the
desired effect of incenting certain behaviors.
2.6.5 Texas
Texas has been the leader in funding formula development since 1950. Texas’ formulas and models have
been copied by many states, especially since Texas has done a cost study every other year since the 1950s.
This long record of discipline costs, facility costs, and the relationships to other components of institutional
costs is one of the best in all the states.
In 2010, the Texas Higher Education Coordinating Board (THECB) determined that it should move to the
new paradigm of funding formulas. Although Texas had used several forms of incentive and/or performance
funding since the 1990s, the 2012 request budget is focused on student success and a comprehensive shared
responsibility model. The state must provide adequate levels of support, the institutions must provide
support services, the students and their families must enter college ready to benefit, aware of financial aid
opportunities, the community must foster a college-going culture, and the K-12 system must prepare
students academically.
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The new funding model aligns the formula to the mission of the institution based on measures of student
success, and provides performance funding to recognize achievement in meeting student success. For the
universities, funding is based on an instruction and operations formula that provides funding for the general
operations of the institution, based on discipline and level, and a formula for facilities, with a supplement for
teaching experience and for small institutions. In the new formula, the count of credit hours is based on
enrollment at the end rather than the beginning of the semester, with weights for at-risk students.
Performance incentive funding was to be continued to ensure institutions would continue to meet state
needs. This was to be phased in over time to allow for institutions to plan.
For the community and technical colleges, funding is to be based on two formulas: 10 percent on
momentum points and 90 percent on attempted contact hours. Attempted credit hours were weighted by
critical fields, and by the difference in the costs of providing education. In addition the small institution
supplement, and funds for alternative teacher certification were continued.
For health-related institutions, five formulas were used to calculate the institution’s allotment: instruction
and operation, infrastructure, research enhancement, graduate medical education, and mission specific
allowances.32
2.6.6 Washington
In 2006 the Washington State Board for Community and Technical Colleges (WSBCTE) adopted a new
performance funding system for the community and technical colleges. The system was based on work
done by Teachers College Columbia University funded by the Bill and Melinda Gates Foundation that
identified “momentum points” which are times in a student’s college education that lead to continued
success. These points have also been called “tipping points.”
These points are key academic benchmarks that students meet that lead to successful completion of
degrees and certificates. There are four categories of momentum points: building toward college levels
skills, first year retention, completing college level math, and completion. These intermediate points in a
college career provide “momentum” toward completion Washington studied these measures, and in 2008
allotted $52,000 to each college to develop student success strategies. After the successful
implementation, in 2011, $3.5 million was allotted to fund the momentum points.
Momentum points directly measure results. These measures have been used by WSBCTE: test score
gains on basic skills tests, or earning a GED; passing a remedial math or writing course; earning 15 credit
hours; earning 30 credit hours; completing five credit hours of college level math; earning a degree,
completing an apprenticeship, or earning a certificate. Colleges are awarded one point for each
momentum point earned above the previous year level of performance. Funding is set at a flat dollar
amount for each point and if available funding does not cover all rewards, points are banked for the
following year. All awards become part of the institution’s base, and if the college’s enrollment declines,
momentum points are pro-rated.33
32 Texas Higher Education Coordinating Board, “Texas Higher Education Finance and the Formulas” Austin, TX. April 29, 2010. 33 Washington State Board for Community and Technical Colleges, “Student Achievement Initiative,” downloaded from
WSBCTC web site, May, 2010.
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3.0 Introduction
Over the past several years, public higher education, both in the U.S. and internationally, has increasingly
been required to explain, defend, and validate its performance and value to a wide variety of constituents,
including governors, legislators, students, parents, employers, and taxpayers. This trend is related to a
number of converging factors:
the economic crisis in state funding;
intense competition for extremely limited state tax dollars among all areas of
government, and an increased focus on results and outcomes for public services;
increased societal needs and expectations for public higher education; and
increased skepticism and scrutiny of all social institutions.
This focus on “accountability” has led to the development of a continuum of performance-oriented
mechanisms ranging from higher education “report cards” to performance-based funding for public
colleges and universities. The latter is by no means a new concept in public budgeting, either in general or
for higher education specifically. The federal government experimented with this kind of budgeting in the
1960s, and the state of Tennessee has had an ongoing performance-based funding program for higher
education in place since 1979. In 2000, at the height of performance funding in higher education, more
than three-fifths (35) of all states engaged in at least one form of performance-based funding.
However, the current wave of performance-based funding is quite different from that of a decade ago.
State higher education leaders have begun to link calls for additional funding to increased accountability
and increased efficiency of operations. One of the main differences between performance-based funding
then and now is the change in the focus from meeting the needs of higher education to meeting the needs
of students, the state and its economy.
In 2006, then U.S. Secretary of Education Margaret Spellings formed a bipartisan Commission on the
Future of Higher Education that looked at the problems of higher education. Among those was the
absence of accountability mechanisms to ensure that colleges succeed in educating students.1
3.1 Best Practices and Guiding Principles in Developing and Implementing
Systems of Institutional Performance Measurement
The driving force behind any performance-based funding model is the desire to establish a formal link
between institutional performance and funding received. These are ultimately translated into a system of
performance indicators on which the allocation is based. The concept of what is a “best practice” in
measuring the performance of higher education institutions continues to evolve. However, there are a
number of guiding principles that are generally accepted as “good practice” in the development of
institutional performance measurement mechanisms. Exhibit 3-1 outlines 11 guiding principles that are
presented in no particular order of importance. The process for developing and establishing a system of
performance indicators is unique to every enterprise; however, we believe that all 11 of these principles
need to be considered during this process to ensure a successful and effective outcome. Performance
1 Spellings Commission, “A Test of Leadership: Charting the Future of U.S. Higher Education,” Washington, D.C.: Commission
on the Future of Higher Education, 2006.
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indicators are not the same as a funding model, and so these principles relate only to performance
indicators.
EXHIBIT 3-1
Guiding Principles For Developing And Establishing
Institutional Performance Indicators
Guiding Principle Definition
Credibility The performance indicators should have internal and external credibility among all institutional stakeholders.
Linkage to Mission, Strategic Plan, and Policy Goals
The performance indicators should incorporate and reinforce institutional missions and strategic plans, as well as broad policy goals.
Stakeholder Involvement and Consensus
The performance indicators should be developed through negotiation and consensus among key stakeholders.
Simplicity The performance indicators should be simple to convey and broadly understood.
Reliant on Valid, Consistent, and Existing Information
The performance indicators should be based on data that are valid and consistent and that can be verified by third parties when necessary. The indicators should also be based on established data sources where possible in order to maximize credibility and minimize additional workload.
Recognizes Range of Error in Measurement
The performance indicators should be established with wide recognition that there are certain unavoidable ranges of error in any performance measurement activity.
Adaptable to Special Situations
The system of performance indicators should accommodate special institutional circumstances where possible.
Minimizes Number of Indicators
The performance indicators chosen should be kept to the smallest number possible in order to minimize conflicting interactions among the indicators and to maximize the importance of each indicator.
Reflects Industry “Standards” and “Best Practices”
The performance indicators chosen should reflect “industry” norms and standards where possible in order to allow for benchmarking and peer comparisons.
Incorporates Input, Process, Output, and Outcomes Measures
The performance indicator system developed should have a balance of measures related to institutional inputs, processes, outputs, and outcomes.
Incorporates Quantitative and Qualitative Measures
The performance indicator system developed should incorporate both quantitative and qualitative measures in order to present the most complete picture of institutional performance possible.
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These 11 guiding principles have a number of corollaries that should be considered as well:
The expectations for institutional performance should be clearly understood and
stated at the outset. Organizations can only “improve” if there is an understanding of
the priorities for organizational performance. Clearly, the priorities should grow out of
organizational mission and goals, however it is important that these be understood and
agreed to by key participants at the beginning of the process.
The starting place for institutional performance measurement and benchmarks for
success varies among institutions. Because each institution operates within its own
context, the beginning point for institutional performance measurement will also vary
depending on the specific performance indicator. Using “graduation rate” as an
example, one institution may be at 45 percent for a six-year graduation rate while
another may be at 85 percent. Because these types of variances can be due to a variety
of potentially valid reasons, no value judgment should automatically be attached.
“Continuous improvement” is not infinite. A related issue that must be dealt with in
establishing performance measurement mechanisms is the fact that the rate of
“improvement” in any given area is non-linear. Institutions may be able to make great
strides toward improving certain operational or programmatic areas initially, but then
come to a standstill. Or, an institution may move forward in another area and then
falter for a period of time. In short, it is important to realize that the process of
enhancing institutional performance is imprecise at best and that to expect institutions
to “continuously improve” is unrealistic.
Performance measures should not be developed only with available data systems in
mind. Implementing a system of institutional performance measurement requires data
to be available. In fact, most institutions develop performance measures with this in
mind. This practice has both positive and negative consequences. The ability to work
with existing data systems reduces the start-up time and cost to implement a
performance indicator system. It also improves the comfort level of those involved,
and thus the credibility of the process. On the other hand, limiting an institution’s
performance measures according to data availability may not result in the most
appropriate or meaningful set of measures in the long run. Thus, notwithstanding the
benefits of using existing data systems, the development of performance measures
should recognize the current availability of data where appropriate, but should be
primarily driven by the questions “what are we trying to measure?”, and “why?”
Perhaps the greatest challenge in designing a performance indicator system is to achieve some level of
balance among all of these competing, and sometimes contradictory, principles. Again, no one of these
principles is more important than the others. Rather, it is important that all be considered during the
design and implementation of the system.
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3.2 Frameworks Used in Developing Performance Indicator and
Performance-Based Funding Systems
The development of performance indicator and performance-based funding systems is ultimately based on
the desire for accountability. At the state- and system- levels, accountability is implemented by setting
goals and objectives for institutions and periodically assessing progress towards those goals and
objectives, using accepted indicators. While the setting of goals and objectives is an activity that is unique
to every state/system, Ewell and Jones (1994) note four approaches commonly used in measuring
progress towards these goals and objectives:
The input, process, outcome model – this is a “production process” model aimed at
measuring the value added to departing students, perhaps through pre- and post-
assessments.
The resource efficiency and effectiveness model – this approach is designed to measure
the efficient usage of key resources such as faculty, space, and equipment, using ratio
analyses or similar techniques.
The state need and return on investment model – this approach is built on the
assumption that higher education is a strategic investment for states: it is designed to
measure the fit between higher education and state needs (e.g., work force preparation
and training).
The “customer need” and return on investment model – this approach is built on the
notion of “consumerism”, and is designed to measure the impact of higher education in
meeting the needs of the individual (e.g., retention and graduation rates, employability
and earning potential of graduates).
These four approaches are certainly not mutually exclusive, and most systems/states employing
performance indicators choose from two or more of these areas. Further, no one approach is “better” than
the others. Rather, the important thing is that the approach(es) chosen be relevant and appropriate for the
institution, system, and state.
Although performance indicator mechanisms do generally vary by state, there are some similarities in the
types of measures that are used for reporting. Exhibit 3-2 provides a list of commonly used institutional
and statewide indicators. Perhaps not surprisingly, these indicators cut across all four approaches
described previously. Appendix A lists the accountability measures used by several states as examples of
indicators.
Some of the earlier performance funding initiatives adopted in the states were not continued for various
reasons, both political and financial. There are some characteristics that are common to successful and
stable performance-based funding programs:
1. Involvement and input from state governing or coordinating boards;
2. Accent on both institutional improvement and accountability;
3. Sufficient time allowed for both planning and implementation;
4. Excellent data systems that provide defensible and accurate information;
5. Measures related to institutional missions;
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6. Use of a limited number of indicators; and,
7. Recognition and protection of institutional diversity.
These findings are consistent with the set of guiding principles discussed earlier, and therefore reinforce
their importance.
EXHIBIT 3-2
Commonly Used Higher Education Performance Indicators
INSTITUTIONAL PERFORMANCE INDICATORS
Graduation Rates
SAT/ACT Scores
High School Averages
Transfer Rates - two-year and four-year institutions
Tuition and Mandatory Fees
Enrollment Trends – level, FTE, full-time, part-time, race, gender
Faculty and Staff – race and gender
Faculty Workload
Administrative Size/Cost
Program Accreditation
Remediation Activities and Effectiveness
Pass Rates on Professional Licensure Exams
Alumni Satisfaction Survey
Employer Satisfaction Survey
Graduate Job Placement
Graduate Further Education
Sponsored Research Funds
An Approved Quality Assurance Process
STATEWIDE PERFORMANCE INDICATORS
College Participation Rate of High School Graduates
Transfers Between Two- and Four-Year Institutions
State Student Financial Aid Funding
State Funding per Student for Public Institutions
Tuition and Fees as a Percent of State Median Family Income
Postsecondary Degree Attainment
Degree Attainment in Critical Fields Source: Burke (2000, February).
A variation on performance-based funding is the competitive, or incentive, grant approach. In this model,
a pool (or pools) of funding is set aside to be targeted to meet a specific goal or policy initiative.
Typically, these funds are controlled by a state coordinating board or system office. Institutions then
develop proposals to compete for the funding. Florida, Illinois, Kentucky, and Ohio are all examples of
states that have used these types of programs over the years to target dollars to specific purposes such as
improving undergraduate education, enhancing research and economic development activities, improving
minority student achievement, and meeting specific programmatic shortage needs (e.g., engineering,
computer science). It is interesting to note that Kentucky actually transitioned from a performance
funding model in the mid-1990s to its incentive grant approach.
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3.3 Program Design and Implementation Issues
There are at least four aspects to establishing and implementing performance funding programs that must
be addressed:
Success Criteria – the standards by which institutional performance is measured.
Indicators and Indicator Weights – the percent of funding to be allocated for each
indicator.
Allocation Methods – the relationship between performance funding and operating
budgets.
Funding Levels – the amounts available for rewarding performance.
These methods are not mutually exclusive and all have their strengths and weaknesses, particularly when
considered within the guiding principles described earlier. For example, while benchmarking against
one’s own past performance may seem to be relatively non-threatening, it can soon bump up against the
reality that continuous improvement is not infinite. Likewise, comparisons with external peers add a level
of “benchmarking” and independent validation to the process. However, such comparisons invariably
introduce data comparability issues that can cloud the validity of the comparisons, if not properly
controlled. Finally, comparisons against preset targets can enable stakeholders to assess progress toward
desired policy outcomes and goals in relatively specific fashion (e.g., improved retention and graduation
rates). However, these preset targets need to be designed with the recognition that each institution
operates within its own unique context and is starting from a different place. In short, a combination of
all three methods is perhaps most desirable in setting success criteria.
For example, the performance funding model developed by the Oregon University System required that
the universities set two separate targets for each of their indicators. The first target represents
improvement against the institution’s own baseline performance, while the second target takes into
consideration the current performance of their external peer institutions. This approach provides both an
internal and external context for assessing performance improvement.
3.3.1 Indicators and Indicator Weights In performance funding systems that have more than one indicator, an often thorny issue is what “weight”
to assign each individual indicator in coming up with a composite performance score. The philosophical
and political undertones of this issue cannot be understated, in that everyone involved will have at least a
somewhat different opinion on the relative importance of each indicator, particularly when the degree to
which institutions “excel” varies on each indicator as well. Three approaches to developing indicator
weights have emerged:
1. Equal weighting – each indicator is given the same weighting.
2. Preset, differential weighting – each indicator has a different weighting.
3. Institutional selection within a preset range of acceptable weights – each institution is
allowed to determine the weight assigned to each of its indicators within a preset
range.
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The first two approaches certainly have strengths and weaknesses within the context of the guiding
principles. Equal weighting is certainly simple, however it does not enable the recognition of institutional
diversity nor priority setting. Likewise, differential weighting may enable the recognition of specific
priorities in improving performance; however, it works against the concept of simplicity, and may unduly
focus institutional attention on those indicators with the greatest weight. The third approach, which was
the one used by Kentucky in its now-defunct performance funding program, may strike the greatest
balance between all of the guiding principles.
3.3.2 Allocation Methods
Of obvious interest (particularly to recipients of performance funds) is the issue of how the performance
funds make their way from the state treasury to institutional budgets. There are two issues related to how
the funds get allocated. First, there is the issue of whether performance funds should be kept in a separate
pool to be allocated each year over and above institutional base budgets, or whether performance funds
should be part of institutional base budgets from the start. Second, there is the issue of whether the use of
the dollars received is left up to the discretion of each institution or if there are restrictions on institutional
use of the performance funds received.
The first issue is largely a question of control versus stability. Obviously, from the state and/or system
office perspective, being able to identify, control, and target a separate pool of funding enables great
policy (and political) leverage. At the same time, history has shown that such categorical programs are
often the first to suffer in times of budgetary downturn, largely because of their status as a separate and
relatively “undedicated” pool of funding. While funding that goes directly into institutional base budgets
can also be cut, it is less likely that such cuts would occur. However, state and/or system control over the
use and purpose of these funds is greatly minimized once they become part of institutional base budgets.
The second issue is also a question of control versus flexibility, the answer to which depends on the
ultimate intent of the program. If the state or system views performance funding as simply a means to
reward institutional performance, then there seems to be less of a need to restrict the use of the dollars
once they are allocated. However, if the state or system views the program as a way to also improve upon
and remediate problem areas at the institutional level, then there would appear to be some logic in
restricting at least part of the funds available to institutional improvement activities in those areas.
3.3.3 Funding Levels
The final implementation issue relates to the total dollar amount available for the performance funding
initiative. Historically, amounts vary from state to state and year to year, with a range of 0.5 percent to 10
percent of state operating appropriations for higher education. Clearly, the challenge is to have an
amount that is large enough to generate institutional interest, within the other competing needs in the state
budget. It is also important that the amount available retain a level of stability from year to year to
maintain the long-term viability of the initiative. From that standpoint, it is probably better to start out
with a relatively small amount and increase it gradually over time as conditions allow, as opposed to
starting out large and then have to reduce it in subsequent years. In fact, the effectiveness of the
performance funding initiative in Kentucky was ultimately undermined due to the latter approach.
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Chapter 3
Performance Funding in Higher Education
3.4 Performance or Accountability in 2010
As discussed in Chapter 2, states have been using performance or accountability funding since 1979 to
incent or reward behavior of higher education institutions. In 2010 every state has some form of
accountability or performance measures for higher education. Most do not use these measures as a
component of funding.
In addition to state-specific systems of performance or accountability, there are several notable national
measures of state higher education performance. One of these is the Measuring Up reports issued in
even-numbered years by Patrick Callan’s group, the National Center for Public Policy and Higher
Education. These reports were issued in 2000, 2002, 2004, 2006, and 2008, and provide for each state its
performance on a number of higher education measures, such as affordability and access. Assessments for
2010 were not available as of the time of this paper. These assessments are valuable in the information
that is provided to the public, but are not used in state performance funding models.
Exhibit 3-3 displays the performance measures or accountability factors that are included in the
performance models of California (the California State University System), Colorado, Florida, Indiana,
Louisiana, Ohio, New York, South Carolina, Tennessee, Texas, Washington, and Wisconsin. All of these
states link at least a part of funding to performance measures.
The measures included vary from state to state. All of the states include the number of degrees awarded
in some way in their performance funding. Indiana awards $5,000 for a baccalaureate degree and $3,500
for an associate’s degree, and an additional amount for degrees awarded to adult learners and students
classified as “at-risk.” Tennessee, Louisiana, Ohio, Texas, and Washington include the number of degrees
awarded in the momentum point calculations. Momentum points are specific times in a student’s college
experience where completion or passage of that point gives the student the “momentum” to move on to
achieve greater goals. Examples of momentum points are successful completion of a remedial math or
English course. Time to degree also is a concern in many states, as policymakers are asking students to
graduate sooner, and at lower cost to the student. Graduation on time is considered in the performance
model in Colorado, Florida, Indiana, Ohio, New York, South Carolina, and Wisconsin.
Of special importance in many states, given the need to award more bachelor’s degrees, is transfer from a
community college to a university campus. California, Indiana, Louisiana, Ohio, New York, South
Carolina, Tennessee, and Washington include transfer as a component in their performance models. In
Washington, Tennessee, Texas, and Ohio transfers are counted in the momentum point calculation, and
funds allocated to institutions based on the number of transfers.
Sponsored research activity also is an important component of the mission of universities, and is included
in the performance measures in all the states except California and Colorado. Washington’s performance
funding is used for the community and technical colleges only, which do not have a research mission.
The newest components of performance funding are the use of momentum points and the counting of
enrollment at course completion. Indiana, Louisiana, Ohio, Tennessee, and Texas all are counting
enrollment not as course credit hours attempted but rather at successful course completion. Ohio,
Tennessee, Texas, and Washington are initiating performance funding that relies on momentum points.
These are significant changes in the spectrum of performance measures and performance funding. It is
too soon to determine if these changes will incent behavior that leads to more efficient degree completion
for more students.
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Chapter 3
Performance Funding in Higher Education
EXHIBIT 3-3
Performance Measures Used In A Sample Of States, 2010
Performance Measure CA CO FL IN LA OH NY SC TN TX WA WI
Retention Rates X X
Enrollment At End Of Course X X X X X
Achievement Of Core Competencies X
Degrees Awarded X X X X X X X X X X X X
Degrees Awarded To Adult Learners X X
Graduation Rates X X X X X X X
Time To Degree X X X X X X x
Transfer Rates X X X X X X X X
Sat/Act Scores Or High School GPA X X X
Faculty Workload X X X X X
Remediation X X X
Pass Rates On Professional Licensure
Exams X X X X
Student Opinion Surveys X
Faculty Opinion Survey X
Alumni Satisfaction Survey X
Employer Satisfaction Survey X X
Graduate Job Placement X X
Number Of Licenses Or Patents X
Sponsored Research Funds X X X X X X X X X
Workforce Development X X X X X X
Meeting State Needs X
Momentum Points:
For Community Or Technical Colleges X X X X
For Universities X X
Indicators Chosen By The Institution X X X X
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Chapter 3
Performance Funding in Higher Education
3.5 Performance Indicators In Select Higher Education Systems
University of Wisconsin
Student satisfaction surveys
Alumni satisfaction surveys
Faculty share of undergraduate instruction
Faculty educational workload
Research funding at doctoral institutions
Sophomore competency test (writing and math)
Graduation rate
Post-graduation experience (education or workforce)
Credits to degree
State/university funding for instruction-related activities
Rates of admission and access for Wisconsin high school graduates
Retention of women and multicultural faculty and staff
Tenure of women and multicultural faculty and staff
Hiring and recruitment of women and multicultural faculty and staff
Multicultural student enrollment and graduation rates
Reporting and resolution of sexual harassment complaints
Faculty retention and development
Facilities maintenance
Workplace safety
Employer satisfaction with UW System graduates
Continuing education/extension enrollment
New York - SUNY
Funding Context:
Revenue by source
Tuition rate trends
State appropriation trends
State appropriations per students
NYS Public Higher Education Sector as a percentage of the state budget
E&G expenditures per students
Benchmark condition
Access to Undergraduate Education:
Admissions – applicants, acceptances
Enrollment – total with breakdowns by race/ethnicity, gender, full-time/part-time, level, age, first-
time, race/ethnicity of first-time, and transfer
Student cost – cost of attendance, tuition and fees, room and board
Graduation/retention – graduation rate relative to preparation and background, graduation of
FTIC by race/ethnicity, transfer rates (by various characteristics), graduation rate of transfers (by
various characteristics), total number of graduates, gender, time to degree, freshman to
sophomore retention
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Chapter 3
Performance Funding in Higher Education
Undergraduate Quality, Student and Institution:
Percentage of SUNY campuses with assessment plans in place
Pass rates on certification exams (e.g., teachers, nurses)
Student opinion surveys and national/sector norms – facilities, services, classes, environment,
student growth/development
Faculty opinion survey
Size of classes
Rank of instructors teaching courses
Competitiveness in Graduate Education and Research:
Enrollment by level or program
Graduation – degrees granted by level
Research – dollar value of sponsored programs, number of faculty grants/dollar volume per FT
faculty, number of disclosures and patents
Recognition – faculty and graduate student awards, faculty professional activities
State Needs:
Workforce Development - graduates in specific programs, percentage of medical residencies in
primary care, percentage of NYS graduates from SUNY in selected fields, non-credit registrations
by field
Sponsored research – dollar volume of sponsored programs, peer comparisons of economic
development, number of licenses, sponsored programs per FTE
Management:
Management - meeting enrollment goals, faculty contact hours, student-faculty and student-staff
ratios, staffing trends, facilities evaluation, ethnicity and gender of staff, fundraising, faculty
satisfaction, faculty workload by discipline
South Carolina
Mission Focus:
Expenditure of funds to achieve institutional mission
Curricula offered to achieve mission
Approval of a mission statement
Adoption of a strategic plan to support the mission statement
Attainment of goals of the strategic plan
Quality of Faculty:
Academic and other credentials of faculty
Performance review system for faculty
Post-tenure review for tenured faculty
Compensation of faculty
Availability of faculty to students
Community and public service activities of faculty
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Chapter 3
Performance Funding in Higher Education
Instructional Quality:
Class size and student-teacher ratios
Average number of credit hours taught by full-time faculty
Ratio of full-time faculty as compared to other full-time employees
Accreditation of degree-granting programs
Institutional emphasis on quality of teacher education and reform
Institutional Cooperation and Collaboration: Sharing and use of technology, programs, equipment, supplies, and source matter experts within
the institution and with the business community
Cooperation and collaboration with private industry
Administrative Efficiency:
Percentage of administrative costs as compared to academic costs
Use of best management practices
Elimination of unjustified duplication of a waste in administrative and academic programs
General overhead costs per FTE student
Entrance Requirements:
SAT scores of student body
High school class standing, GPA, and activities of student body
Postsecondary non-academic achievements of student body
Priority on enrolling in-state students
Graduates; Achievements:
Graduation rate
Employment rate for graduates
Employer feedback on graduates examinations and certification tests
Number of graduates who continue their education
Credit hours earned of graduates
User-Friendliness of Institution:
Transferability of credits to and from the institution
Continuing education programs for graduates and others
Accessibility to the institution of all citizens of the State
Research Funding:
Financial support for reform in teacher education
Amount of public and private sector grants
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Chapter 3
Performance Funding in Higher Education
Colorado
Graduation rates and credits for degree (four-year institutions)
Graduation rates and credits for degree (two-year institutions)
Faculty instructional productivity
Freshman persistence
Achievement rates on licensure, professional, graduate school admission tests
Lower division class size
Approved and implemented diversity plan
Institutional support costs (percentage of E&G expenditures)
Institutional indicators (two selected by institution and approved by governing board)
California State University
Quality of Baccalaureate Degree Programs:
Assessment of student learning outcomes and achievement of core competencies (first three
years)
Report of academic program reviews that summarize assessment results and how they have been
implemented to improve teaching and learning
Progression to the Degree:
Percentage of students who progress from year to year
The number of upper-division units completed by transfer students who are graduated as
compared to the number of upper-division united completed by FTIC freshman who are
graduated
Graduation:
Graduation rates by relevant demographic and student characteristics
Areas of Special State Need:
The number of credentials issued by the California Commission on Teacher Credentialing to
candidates completing professional education requirements
Relations with K-12:
The number of CSU faculty and students, the number of high schools, and the number of high
school students involved in outreach efforts
The percentage of regularly eligible students who are fully prepared in mathematics and English
composition
Remediation:
The percentage of students requiring remediation who complete remediation within one year
Facilities Utilization:
The percentage of course enrollments occurring during evenings, weekends, summers, and other
“off-peak” times
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Chapter 3
Performance Funding in Higher Education
University Advancement:
Annual Voluntary Support Report with indicators for funds raised via alumni, corporate, and
foundation support
Annual Special Revenues Report with indicators for funds raised via scholarships, bequests and
revocable trusts, pledges, contacts, grants, property transfers, and endowment income
Annual report on alumni participation as measured by formal membership in the alumni
association and alumni program activity
A goal to raise in private funds a sum equal to or great then 10 percent of the university net
general fund allocation
Florida - State University System
Meet SUS enrollment plan
SUS graduation rates for FTIC
Sponsored research expenditures
University endowments and annual giving
Degrees granted
University measures (developed by the institution and reviewed by the Chancellor)
Baccalaureate degree production, graduation, and retention
Baccalaureate degree per 100 student FTEs
FTIC Graduation-Retention Index
Five-year change in graduation rates
Performance-based incentives (varies by institution)
Baccalaureate Degrees Granted
Ohio - Two-Year Colleges
Momentum points:
Completion of 15 credit hours
Completion of 30 credit hours
Completion of 45 credit hours
Completion of an A.A. or certificate
Apprenticeship
Transfers to a 4-year institution
Successful completion of 5 credit hours of college level mathematics
Successful completion of a remedial mathematics or English course
Performance-based incentives (varies by institution)
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Chapter 4
Evaluation of the Nevada Funding Formula
4.0 Introduction
To evaluate the current funding formula, MGT was guided by the following requirements of the
engagement to complete the following:
● Analyze the “drivers” for the formula which include (but are not limited to) enrollment
(FTE), student to faculty ratios for program costs (allowing for the range of
developmental to professional programs) and rural and small college considerations.
● Evaluate and as appropriate identify and recommend formula attributes to consider
that would address mission differences. Without limiting the foregoing, this part of the
analysis should address funding for research.
● Identify if, and how, performance standards and outcomes could be included in the
funding formula.
● Evaluate and as appropriate identify how administrative functions required for
institutions with multiple sites may be a component of a funding formula.
Differentiate between full campus-level operations and extended centers.
● Include in the analysis specific alternatives for recommended changes, additions, or
modifications to the NSHE formula, including best practices from funding models of
other states or higher education systems.
This chapter of the report will include the analysis of the funding formula. Recommendations for
possible changes, additions, or modifications to the NSHE formula will be included in Chapter 5.
4.1 Guiding Principles for the Formula Evaluation
Over time, a number of researchers in the area of higher education finance have offered their concepts
regarding desired characteristics in state higher education funding formulas. Frequently, what is offered
as the “desired characteristic” is in direct response to a perceived shortcoming of a particular state’s
funding formula or guideline. MGT provided the NSHE a sample set of guiding principles to use in
evaluation of a funding formula.
For this study, the presidents and Chancellor of the Nevada System of Higher Education identified the
characteristics shown in Exhibit 4-1 to guide the development of a funding model. Any alternative to the
current funding model will be evaluated by these criteria.
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Chapter 4
Evaluation of the Nevada Funding Formula
EXHIBIT 4-1
Guiding Criteria For The Nevada Model
Characteristic Summary Description of Principles
A. Outcomes-
Based
The funding model should incorporate and reinforce the broad goals for the
state’s system of colleges and universities as expressed through approved
missions, quality expectations, and performance standards.
B. Mission-
Sensitive
The funding model should be based on the recognition that different
institutional missions (including differences in degree levels, program
offerings, student readiness for college success and geographic location)
require different rates of funding.
C. Size-Sensitive The funding model should reflect the impact that relative levels of student
enrollment have on funding requirements.
D. Adaptable to
Economic
Conditions
The funding model should have the capacity to be applied under a variety
of economic situations, such as when the state appropriations for higher
education are increasing, stable, or decreasing.
E. Equitable The funding model should provide both horizontal equity (equal treatment
of equals) and vertical equity (unequal treatment of unequals) based on
size, mission, and growth characteristics of the institutions.
F. Reliant on
Valid and
Reliable Data
The funding model should rely on data that are appropriate for measuring
differences in funding requirements and that can be verified by third
parties when necessary.
4.2 Evaluation of the Current NSHE Funding “Formula” or Model The current Nevada funding model or “formula” is multi-faceted and has evolved over the last thirty years
into a complex funding model with multiple components related to functional areas of a college or
university budget. Overall, the judgment could be made that the formula’s many components work
together to satisfy most of the criteria determined by the System staff and presidents as the important
criteria for a formula, with the exception of “outcomes-based.” The current funding model does not have
a performance component, or an incentive funding component, and could be improved by additions or
changes to incorporate performance. There is no linkage to the goals for the colleges and universities, nor
any measure of accomplishment, and no link to performance standards.
Moreover, multiple improvements can be made to the Nevada model to make it more mission-sensitive,
size-sensitive, adaptable, and equitable. Any of these possible options for changes should be examined in
Nevada’s usual orderly process for changes to the higher education formula funding through the
legislative interim study committees, and should include consultation with all appropriate stakeholders.
It is taken as a given that all of the formula components will be based on valid and reliable data. Without
valid data that can be verified by outside parties, the funding model cannot function effectively, or be
perceived as useful to policy makers.
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Chapter 4
Evaluation of the Nevada Funding Formula
There are several factors that drive the formula: credit hours, which are converted to full-time equivalent
students; student to faculty ratios; numbers of faculty; faculty salaries; and gross square feet. Acreage is a
component of the formulas but it is not as important in the formula computations at other drivers.
The credit hour count is combined with the student to faculty ratios to drive the faculty count. In turn, the
faculty count drives much of the rest of the formula: numbers of classified employees, number of
academic administrators, volumes in the library, equipment replacement, operating and wages, teaching
assistants at the community colleges, and institutional support funding (as a percent of the other budgets).
Therefore, the translation of credit hours to SFTE to the number of faculty through the student to faculty
ratios is the most important computation in the funding model. If the translation algorithm is incorrect, or
has been “gamed” by the institutions, or is perceived to benefit one institution over another, or does not
correctly model the costs of providing instruction in each discipline, then the entire formula will be
perceived as resulting in inequitable allocations of resources.
The computation of the number of full-time faculty at the community colleges is different than that for the
universities and NSC. Because of this difference, and its impact on so many other components of the
formula, the formula is not as equitable as it could be. This particular component is discussed in detail in
the section on Instruction.
In the sections that follow, each of the components of the funding model will be examined from the
perspective of the guiding criteria and in the context of the “drivers” of the formula. Options for
improvements, additions, or modifications to the formula will be summarized in Chapter 5.
4.2.1 Instruction
This category includes all expenditures for credit courses; for academic, vocational, technical, and
remedial (colleges only) instruction; and for regular, special, and extension sessions (most of these special
and extension are self-supporting outside of the state budget). Excluded are expenditures for academic
administration when the primary assignment is administration (such as deans). Instruction is the most
complex, and most expensive, component of an institution’s expenditures. Because of its importance,
identification of appropriate cost factors is critical to the validity of the formula development process. For
Nevada, this is especially critical since the credit hour distribution drives the number of faculty which
drives much of the rest of the formula components, as noted above.
Nevada’s current formula for Instruction differentiates between the four-year and two-year campuses. No
Instruction component is included in the funding for the Desert Research Institute (DRI); any instruction
that DRI staff provide is through contracts with UNR and UNLV.
The Nevada formula uses a legislatively-approved credit hour taxonomy matrix that differentiates
between high, medium, and low cost and clinical classes at the lower division, upper division, masters,
and doctoral instructional levels. A student/faculty ratio is used to determine the number of instructional
faculty required for each institution according to the number of students projected to enroll by level of
instruction and by the relative cost of the discipline. Separate components of the matrix are used for the
universities, for Nevada State College, and for each of the colleges/community colleges, resulting in a
twelve by four matrix. Higher levels of instruction and higher discipline costs are reflected by lower
student to faculty ratios. Once GBC and WNC reach a SFTE level of 3,000, lower division funding is to
be the same for all colleges/community colleges. Exhibit 4-2 displays the current taxonomy matrix.
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Chapter 4
Evaluation of the Nevada Funding Formula
EXHIBIT 4-2
Student-Faculty Ratios
Lower
Division
Upper
Division Masters Doctoral
All Institutions, Clinical 8 8 8 8
High Cost, UNR & UNLV 18 13 10 8
High Cost, NSC 18 15 12
High Cost, CSN & TMCC 14 14
High Cost, GBC & WNC 12 12
Medium Cost, UNR & UNLV 21 16 13 8
Medium Cost, NSC 21 18 15
Medium Cost, CSN, GBC,
TMCC, & WNC 21 16
Low Cost, UNR & UNLV 26 22 16 8
Low Cost, NSC 26 24 18
Low Cost, CSN, TMCC, WNC 26 25
Low Cost, GBC 23 22
The institutions report actual student credit hours (SCH) for the previous year by level of instruction and by
discipline, which are converted to full-time student equivalents (SFTE) by dividing the number of credit
hours by 30 for undergraduates, by 24 for masters level, and by 18 for doctoral. The percentage distribution
of SFTE enrollment by levels of instruction and discipline is calculated and the same percentage is applied
against projected enrollments. SFTE enrollment projections are based on a weighted three-year average
rolling growth rate that is applied to the current actual annual full-time enrollments. The previous three
years of actual enrollments are weighted with the most recent year given 50 percent, the second year 30
percent, and the earliest year, 20 percent. For the 2009-2011 biennium, the three-year weighted average was
not used in the calculation of the budget.
The number of faculty members as calculated by this formula is then compared to the prior year’s budgeted
number of faculty. Any change in faculty positions are funded at (or reduced by) established rates that are
different for the two universities and NSC and for the community colleges. For the universities and NSC,
new faculty positions are funded at the mid-point of Q1 and Q2 of the academic salary schedule for an
associate professor, plus associated fringe benefits. For the community colleges, new faculty members are
funded at Rank 4, Step 10 of the academic salary schedule, plus fringe benefits.
For the colleges, new instructional positions are distributed at the ratio of 60 percent full-time positions, and
40 percent part-time. New part-time faculty positions are funded at 60 percent of the base salary for full-
time faculty, plus associated fringe benefits.
In addition to faculty positions, the Instruction formula provides one additional classified position for every
five new instructional faculty members. Classified positions are funded at Grade 27, Step 1 of the State’s
employer paid compensation schedule, plus associated fringe benefits.
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Chapter 4
Evaluation of the Nevada Funding Formula
The Instruction formula also provides for operating and wage costs at a predetermined amount which is
adjusted at the inflation rate plus 1 percent. Currently, universities are funded at $7,368 per faculty FTE;
NSC at $6,141 per faculty FTE; community colleges at $ 5,650 per faculty FTE; classified staff at $2,825
per FTE for all institutions.
The instruction formula also generates equipment funds for each existing full-time faculty and classified
position. These funds are used for faculty start-up packages, instructional equipment replacement, and other
workstation replacement. For faculty, universities are currently funded at $6,387 annually per faculty
position; NSC at $5,527; community colleges at $4,350; and all classified positions at $1,228 per position.
For new positions, equipment is calculated by a separate formula as defined by the State Budget Division
guidelines as $6,000 per new FTE faculty position and $4,000 per new classified position.
Graduate assistants at the universities and NSC and college teaching assistants at the four colleges are
provided through formula calculations. For the community colleges, $1,000 per full-time faculty member,
plus associated fringe benefits is allocated to fund teaching assistants. For UNR, UNLV, and NSC, one
graduate assistant is allotted for every eight projected master’s level student headcount enrollments, and one
for every 3.33 projected doctoral student headcount enrollments. Assistantships are funded at one-half the
cost of an instructor position, plus associated fringe benefits.
In addition to all of the above calculations, a separate salary equity pool was designated to eliminate the
inequity in faculty salaries between UNLV and UNR. The pool of funds was determined by multiplying 10
percent of the FTE turnover rate by the difference in the all-ranks salary at the two institutions. UNLV drew
the equity pool funds for each faculty vacancy filled at a salary higher than the current budget for the
position. The equity pool was to be funded for three biennia, and was to result in equal salaries by the 2005-
2007 biennia.
There are multiple components of the Instruction formulas that merit attention: the taxonomy matrix,
classification of courses within the taxonomy matrix, remedial classes; faculty mix between full-time and
part-time, lower division differentiation of costs by sector, doctoral discipline costs, operational cost
factors, productivity factors, rolling average FTE, and the complexity of the Instruction formulas. Instructional costs for multi-campus operations are no different than for single campus operations, as the
costs of instructional salaries are the same. Therefore, the issue of multi-campus operations will be
discussed under other components of the funding model.
Credit Hour Matrix (Taxanomy). The first issue is the credit hour matrix, which collapses all credit hours
by discipline and level of instruction into what has been called a four-by-four or 16-cell matrix (four cost
categories and four levels of instruction). The matrix is actually a twelve-by-four matrix. The purpose of
the matrix is to recognize differences in the cost of instruction that vary by discipline, by size and type of
institution, and by level of instruction. Credit hours earned in the Schools of Medicine, Dentistry, and Law
are not included in this matrix. Exhibit 4-3 displays the disciplines that are included in the current matrix.
For a particular discipline, Nevada maintains the same cost category across all instructional levels. A four-
by-four matrix originally was set up to simplify the varying costs of 50 or more discipline categories, each
of which has its own unique cost. Reducing all disciplines down to essentially four does simplify the
matrix, but as a result some legitimate cost differences are not adequately included, especially at the doctoral
level where all disciplines essentially are given the same cost. The student-faculty ratio at the doctoral level
for all four cost categories is 8 to 1.
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Chapter 4
Evaluation of the Nevada Funding Formula
EXHIBIT 4-3
Disciplines Within Each Of The Current Cost Categories
CIP CODE & SUBJECT AREAS SUPPORT LEVELS
Clinical High Medium Low
01. Agricultural, Agriculture Operations, and Related Sciences
01.01 - Agricultural Business & Management X
01.06 - Applied Horticulture & Horticultural Business Services X
01.09 - Animal Sciences X
03. Natural Resources & Conservation
03.01 - Natural Resources Conservation & Research X
03.02 - Natural Resources Management and Policy X
03.99 - Natural Resources & Conservation, Other X
04. Architecture & Related Services X
05. Area, Ethnic, Cultural, & Gender Studies X
09. Communication, Journalism, & Related Programs X
11. Computer & Information Sciences & Support Services X
12. Personal & Culinary Services X
13. Education X
14. Engineering X
15. Engineering Technologies/Technicians X
16. Foreign Languages, Literatures, & Linguistics X
19. Family & Consumer Sciences/Human Sciences X
22. Legal Professions & Studies X
23. English Language & Literature/Letters X
24. Liberal Arts & Sciences, General Studies & Humanities X
25. Library Science X
26. Biological & Biomedical Sciences X
27. Mathematics & Statistics
27.01 – Mathematics X
27.03 - Applied Mathematics X
27.05 – Statistics X
28. Reserve Officer Training Corps (JROTC, ROTC) X
29. Military Technologies X
30. Multi/Interdisciplinary Studies X
30.19 - Nutrition Sciences X
31. Parks, Recreation, Leisure, & Fitness Studies X
32. Basic Skills X
38. Philosophy & Religious Studies X
40. Physical Sciences X
42. Psychology
42.01 - Psychology, General X
42.06 - Counseling Psychology X
42.17 - School Psychology X
42.18 - Educational Psychology X
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Chapter 4
Evaluation of the Nevada Funding Formula
EXHIBIT 4-3 (continued)
Disciplines Within Each Of The Current Cost Categories
CIP CODE & SUBJECT AREAS SUPPORT LEVELS
Clinical High Medium Low
43. Security & Protective Services
43.01 - Criminal Justice & Corrections X
43.02 - Fire Protection X
44. Public Administration & Social Service Professions X
44.07 - Social Work X
45. Social Sciences X
46. Construction Trades X
47. Mechanic & Repair Technologies/Technicians X
48. Precision Production X
49. Transportation & Materials Moving X
50. Visual & Performing Arts X
50.04 - Design & Applied Arts X
50.05 - Drama/Theatre Arts & Stagecraft X
50.06 - Film/Video & Photographic Arts X
50.07 - Fine & Studio Art X
50.09 – Music X
51. Health Professions & Related Clinical Sciences
51.02 - Communication Disorders Sciences & Services X
51.06 - Dental Support Services & Allied Professions X
51.07 - Health & Medical Administrative Services X
51.08 - Allied Health & Medical Assisting Services X
51.09 - Allied Health Diagnostic, Intervention, &Treatment Profession X X
51.11 - Health/Medical Preparatory Programs X X
51.15 - Mental & Social Health Services & Allied Professions X
51.16 – Nursing X
51.18 - Ophthalmic & Optometric Support Services & Allied Profession X
51.20 - Pharmacy, Pharmaceutical Sciences, & Administration X
51.22 - Public Health X
51.23 - Rehabilitation & Therapeutic Professions X X
51.32 - Bioethics/Medical Ethics X
52. Business Management, Marketing, and Related Support Services X
52.04 - Business Operations Support & Assistant Services X
52.09 - Hospitality Administration/Management X
52.12 - Management Information Systems & Services X
54. History X
Source: NSHE.
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Chapter 4
Evaluation of the Nevada Funding Formula
Cost matrices generally are the result of cost studies, but Nevada does not do a periodic cost study; any
changes to the matrix will have to rely on cost studies done by other states. Of particular note are the cost
studies done by Texas, Ohio, Florida, and Illinois. For over thirty years, all four of these states used a
statewide, consistent methodology to measure the costs of providing courses in the various disciplines.
Weights have shifted over time as pedagogical changes have taken place. Any of these cost studies (which
differ significantly) could generate weights that can be converted to student to faculty ratios for use in
Nevada. Or, the four can be combined for an average of the cost studies. Exhibit 4-4 displays the weights
for the four states.
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Chapter 4
Evaluation of the Nevada Funding Formula
EXHIBIT 4-4
Matrix Of Student Credit Hour Weights
Illinois Ohio Texas Florida LD UD MS DOC LD UD MS DOC LD UD MS DOC LD UD MS DOC
Agriculture 1.78 2.22 2.96 2.80 5.53 6.47 11.12 10.13 1.88 2.46 7.01 9.35 1.21 4.47 9.65 9.75
Natural Resources and Conservation 1.93 2.36 3.91 14.00 3.14 4.91 6.58 8.15 1.88 2.46 7.01 9.35 1.85 5.78 11.79 9.41
Architecture and Related 2.22 2.53 3.47 5.20 1.95 4.53 7.18 9.15 1.88 2.46 7.01 9.35 3.21 4.46 6.97 6.82
Area, Ethic, Cultural and Gender Studies 2.00 3.42 5.09 7.84 2.41 3.31 8.19 9.32 1 1.7 4.1 9.26 2.13 4.48 12.64 11.10
Communications and Journalism 1.60 2.33 3.80 5.22 2.23 3.44 10.21 11.34 1 1.7 4.1 9.26 1.92 2.89 8.07 10.71
Computer and Information Sciences 2.11 3.24 4.62 5.07 3.07 4.5 7.63 8.95 1.44 2.4 3.85 4.8 1.91 4.99 7.62 11.90
Personal and Culinary Services 1.38 1.64 3.29 5.60 2.16 2.7 12.68 14.41 1.04 1.68 2.88 6.97 1.04 4.98 10.28 10.35
Education 1.49 1.89 2.82 3.24 3.18 3.28 5.11 8.65 1.41 1.73 2.34 7.58 2.27 1.66 5.10 9.46
Engineering 2.62 3.64 4.67 5.22 4.68 5.3 11.21 11.55 2.41 3.82 7.47 15.81 2.50 2.77 8.10 8.92
Engineering Technology 2.27 2.36 3.51 4.31 4.39 4.78 13.79 12.72 2.41 3.82 7.47 15.81 2.58 4.75 4.11 6.27
Foreign Languages 1.67 2.00 3.60 3.84 2.49 3.4 8.33 11.57 1 1.7 4.1 9.26 2.50 3.46 7.09 6.46
Family and Consumer Sciences 2.16 2.7 12.68 14.41 1.04 1.68 2.88 6.97 1.04 4.98 10.28 10.35
Legal Professions 2.29 1.58 3.07 7.53 2.58 3.01 7.66 1.74 2.95 3.1 3.92 1.86 3.19 5.80 31.23
English Language and Literature 1.76 2.20 4.44 3.89 2.42 3.36 8.23 8.82 1 1.7 4.1 9.26 2.88 2.96 7.92 7.63
Liberal Arts and Sciences 3.62 3.07 3.67 1.78 3.81 5.47 11.3 10.51 1 1.7 4.1 9.26 5.10 2.42 5.57 5.11
Library Science 4.00 5.24 3.07 6.69 1 10.72 4.77 1 1.7 4.1 9.26 3.31 5.67 4.41 6.58
Biological and Biomedical 1.40 2.29 4.51 4.84 3.04 4.25 10.63 9.78 1.74 2.95 8.07 20.3 2.40 2.36 9.79 10.27
Mathematics and Statistics 1.44 2.00 4.33 5.20 2.34 3.19 8.76 12.34 1 1.7 4.1 9.26 1.81 3.53 8.10 10.57
Multi/Interdisciplinary Studies 2.58 1.67 2.98 3.16 3.51 5.17 7.97 10.85 1 1.7 4.1 9.26 3.58 3.72 13.33 17.31
Nursing 1.33 2.62 5.87 11.22 3.46 3.96 10.77 11.15 1.96 2.35 4.45 9.94 Parks, Recreation and Leisure Studies 1.04 1.36 2.67 2.84 3.12 3.49 7.67 11.25 1 1.7 4.1 9.26 1.45 2.96 4.75 5.13
Basic Skills 1.24 7.76 2.42 3.36 1.35 1.2 Philosophy and Religious Studies 1.38 2.00 3.73 6.24 2.39 3.19 9.57 11.52 1 1.7 4.1 9.26 1.92 2.06 11.21 11.17
Physical Sciences 1.27 2.44 4.91 4.78 3.28 4.78 12.98 11.25 1.74 2.95 8.07 20.3 2.69 2.78 11.68 10.37
Psychology 1.00 1.67 3.69 4.22 2.11 3.04 7.02 9.07 1 1.7 4.1 9.26 1.00 5.40 7.66 8.26
Security and Protective Services 1.27 1.56 4.71 6.44 2.12 2.68 4.49 6.36 1.9 2.03 2.93 14.4 1.54 2.34 6.66 10.70
Public Administration 1.33 1.69 2.96 4.78 2.75 3.32 4.24 6.61 1.9 2.03 2.93 14.4 2.40 2.10 5.00 13.21
Social Sciences 1.00 1.56 4.44 5.00 2.27 3.03 4.31 6.56 1.9 2.03 2.93 14.4 1.49 3.46 9.60 12.17
Construction and Other Trades 6.76 4.49 13.78 21.33 4.68 5.3 11.21 11.55 1.96 2.42 4.07 2.45 Visual and Performing Arts 2.22 3.67 4.33 3.89 2.72 4.58 10 9.26 1.4 2.31 5.44 7.07 2.92 2.80 11.22 11.21
Health Professions 1.13 1.73 2.49 6.67 3.46 3.96 10.77 11.15 1.23 1.89 3.23 9.14 2.06 4.54 5.19 10.30
Business, Management, and Related 1.53 2.11 3.80 9.82 2.56 3.43 5.85 21.15 1.09 1.7 3.26 24.41 1.57 3.50 4.85 15.29
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Chapter 4
Evaluation of the Nevada Funding Formula
The other states costs shown here, while parallel to Nevada’s in many cases, do not maintain the same
weighting for a discipline across all levels. In other words, a discipline such as Physical Sciences could be
considered medium cost at the lower division level but high cost at the masters’ and doctoral levels. These
differences reflect differences in the size of the classes, in the pedagogy, and the faculty salaries in the
disciplines. All of these states differentiate the costs of doctoral courses, which Nevada currently does not.
The costs shown in Exhibit 4-4 could be grouped into three discipline cost categories. Exhibit 4-5 displays
a matrix based on cost studies for Florida, Illinois, Ohio, North Carolina, and Texas, that groups disciplines
into three categories across four levels of instruction. Disciplines are not necessarily in the same cost
category across all four levels of instruction; doctoral costs are placed into the three cost categories not just
one as the current Nevada matrix places disciplines.
Obviously, working from the cost studies from other states, there are a number of classifications into which
academic programs may be placed. Nevada also could take an average across all the cost studies and place
disciplines into a four-by-four matrix, a three-by-four matrix, or even an eight-by-four matrix, all of which
would be simpler than the current matrix. MGT recommends that NSHE work with appropriate
stakeholders to determine an instruction matrix that would more closely approximate the current
cost of these courses. Included in the cost matrix would be a differentiation of the costs of doctoral
programs. New student-faculty ratios that are consistent with the costs of providing services should be
included in the matrix.
The current matrix does include a provision to recognize differences in the sizes of the institutions, in that
there are different ratios for the smaller community colleges. This is an important component of the matrix,
and should be continued in some manner to recognize economies of scale. Such a factor could be done by
keeping the student-faculty ratios the same across all institutional sizes and including a base amount
for institutions under a certain size.
Classification of Disciplines within the Matrix. Correct placement of courses in the matrix is critical to
the validity and equity of the formula. Currently, all distance education courses are defined as high cost.
Distance education historically has meant those courses offered by two-way interactive video, where
students are in multiple sites with a proctor and the instructor is at a different site, with or without students at
the instructor’s site. In 2010, distance education has come to include not only two-way interactive video but
also any asynchronous learning such as web based courses that a student may log into in his/her dorm room
at 2 a.m., and which do not have an instructor physically present. In addition, some institutions are
classifying as distance education any course taught at a center. These are not distance education if the
instructor is at the “classroom” location.
Cost studies done by the University System of Georgia demonstrated that asynchronous learning does not
cost more to produce and offer than traditional courses. The University of California at Berkeley also
completed a cost study of its use of web based or internet courses as compared to traditionally offered
courses. Even in the biological sciences, web based or internet courses were no more expensive than
traditional courses.
Therefore, the only credit hours that should be placed in the “high cost” category are those that are
two-way interactive video. This change would alter the discipline mix that the colleges and universities
currently report. Since projected credit hours in the cost matrix are assumed to be distributed in the same
manner as past years, this change will necessitate a different methodology as the change is implemented.
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Chapter 4
Evaluation of the Nevada Funding Formula
EXHIBIT 4-5
Sample States Cost Matrix
Lower Division Upper Division Masters Doctoral
Discipline NC
TX
IL
FL
OH
NC
TX
IL
FL
OH
NC
TX
IL
FL
OH
NC
TX
IL
FL
OH
Agriculture & Related 2 3 2 1 3 2 2 2 2 3 2 3 1 3 3 2 2 1 2 2
Natural Resources & Conservation 2 3 2 1 2 2 2 1 3 2 2 3 1 3 1 2 2 1 2 1
Architecture & Related 2 3 2 3 1 2 2 2 2 2 2 3 2 2 1 2 2 2 1 1
Area Studies 1 1 2 2 1 1 1 3 2 1 1 2 3 3 2 1 2 3 2 1
Communication 1 1 2 1 1 1 1 2 1 2 1 2 2 2 2 1 2 1 2 2
Communication Technology 1 3 1 2 1 2 1 1
Computer & Information Sciences 2 3 2 1 2 2 2 3 3 2 2 2 2 2 2 2 1 2 3 1
Personal and Culinary Services 1 1 1 1
Education 1 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1
Engineering 3 3 3 2 3 3 3 3 1 2 3 3 3 2 3 3 3 2 1 2
Engineering Tech 2 3 3 2 3 2 2 2 3 2 2 2 1 1 3 2 1 1 1 3
Foreign Languages and Literature 1 1 1 2 1 1 1 1 2 2 1 2 1 2 2 1 2 1 1 2
Family & Consumer Sciences 1 1 1 1 1 1 3 1 1 2 3 3 1 1 2 3
Legal Professions 3 1 2 2 2 1 3 1 2 3 3
English Language & Literature 1 1 1 2 1 1 1 1 1 1 1 2 2 2 2 1 2 1 1 1
Liberal Arts & General Studies 1 1 3 3 1 1 1 2 1 1 1 2 2 1 2 1 2 1 1 1
Library Science 2 2 3 3 1 2 1 3 3 3 2 1 1 1 1 2 1 3 1
Biological Sciences 2 3 1 2 2 2 3 2 1 2 2 3 3 3 3 2 3 3 2 2
Mathematics & Statistics 1 1 1 1 1 1 1 1 2 1 1 2 2 2 2 1 2 2 2 3
Multi/Interdisciplinary Studies 1 1 2 3 2 1 1 1 2 2 1 2 1 3 2 1 2 1 3 2
Nursing 3 3 2 3 2 2 3 2 3 3 2 3
Parks and Leisure Studies 1 3 1 1 2 1 2 1 1 2 1 1 1 1 2 1 3 1 1 2
Philosophy & Religion 1 1 1 1 1 1 1 1 1 1 1 2 2 3 2 1 2 2 2 2
Physical Sciences 2 3 2 2 2 2 3 2 1 2 2 3 3 3 3 2 3 3 2 2
Psychology 1 1 1 1 1 1 1 1 3 1 1 1 2 2 1 1 3 2 1 1
Protective Services 1 1 1 1 1 1 2 1 1 1 1 1 2 2 1 1 2 2 2 1
Public Administration 2 3 1 2 2 2 2 1 1 1 2 1 1 1 1 2 3 2 3 1
Social Sciences 1 1 1 1 1 1 1 1 2 1 1 1 3 3 2 1 2 2 3 2
Construction & Other Trades 2 3 2 3 2 3 2 3
Visual & Performing Arts 2 2 2 2 2 2 2 3 1 2 2 2 3 3 2 2 1 1 2 1
Health Professions 2 1 1 2 2 2 2 1 2 2 2 2 2 1 3 2 2 3 2 2
Business & Management 1 1 3 1 2 1 1 2 2 2 1 2 2 1 1 1 3 3 3 3
History 1 1 2 1 1 1 1 1 1 1 2 2 1 1 1 1
Basic Skills/Econ Disadvantage 1 3 5 1 1 1
Source: Calculated by MGT from actual cost studies.
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Chapter 4
Evaluation of the Nevada Funding Formula
Remedial Courses. Currently courses that are remedial in nature, or not at the college level, are not
included in the formula for UNR or UNLV, but are included in the discipline mix for NSC and the four
community colleges. During the course of the study, MGT staff was told that approximately 30 percent of
recent high school graduates entering the Nevada colleges and universities needed at least one remedial
course before the student can successfully complete college-level courses.
Such a large percentage of students requiring remedial coursework creates a significant resource challenge
for the colleges. Because these courses are not “college level,” typically states do not provide funding for
remedial in their instructional matrix, but rather fund outside the matrix to recognize the additional costs of
successful remediation. Not only are class sizes in remedial courses lower, but also additional assistance
typically is given outside of the traditional classroom setting. Tutoring and special advising to increase the
likelihood of a successful post-secondary experience may be offered.
States such as Washington, Indiana, Ohio, Texas, and Louisiana recognize successful completion of
remedial classes, especially in mathematics and English language and literature, in their funding models.
Each of these states is providing funding at successful completion of a remedial course. Remedial courses
may be completed at various times during the academic year, and do not follow the typical semester-basis of
course completion. Some students complete the remedial course quickly and are ready to move on to
college-level work. Other students may require the entire academic year to complete the course. Because of
these differences, the methods used in remedial classes may vary considerably to encourage success of
every student.
To incorporate such a mechanism in the Nevada model would require an additional calculation. Course
completions are not the same as earned credit hours, because remedial classes do not count toward
graduation requirements. Likewise, completion of remedial courses can occur at any point during the year.
Therefore, it is recommended that the NSHE consider allocating an additional instructional faculty
person and one-half an FTE staff person at NSC, GBC, WNC, TMCC, and CSN for each 80
successful remedial course completions. Faculty salary amounts and other allocations could be computed
as in the other components of the Instruction formula.
Faculty Mix and Differentiation of Lower Division Courses. For the universities and state college, the
faculty numbers generated by the formula are all considered to be full-time positions. At the community
colleges, 60 percent of the faculty positions are assumed to be full-time and the remaining 40 percent are
part-time. Part-time faculty positions are funded at 60 percent of the full-time faculty salary.
Funding UNR, UNLV, and NSC at a different percentage full-time than that for the community college
introduces disparity to the formula. There is no theoretical justification for this difference. In terms of
equity from the students’ perspective, there should be no difference between the opportunity to have a full-
time faculty member teach a lower division course, no matter which of the institutions the student attends.
This inequity then extends into the other components of the budgets because the number of full-time faculty
is a driver for most of the rest of the budget. There is legitimate differentiation between the salaries of
faculty at a research university and a community college or state college. However, there is no objective
support for a formula that generates a different number of full-time positions for the same level of course.
It is recommended that NSHE consider in its discussions with appropriate stakeholders that new FTE
faculty positions generated by the formula calculation be 100 percent full-time positions. Of course,
this change will have an impact on the total funding requirement for the formula since these positions will
be funded at 100 percent of the salary cost, instead of the current 84 percent (60% + 60% of 40%). This
change will make the formula more equitable, and addresses the criterion “outcomes based.”
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Chapter 4
Evaluation of the Nevada Funding Formula
Operational Factors. The current formula provides different amounts for operating and wage costs at a
predetermined amount which is adjusted at the inflation rate plus 1 percent. Currently, universities are
funded at $7,368 per faculty FTE; NSC at $6,141 per faculty FTE; community colleges at $5,650 per faculty
FTE; and classified staff at $2,825 per FTE for all institutions.
The instruction formula also generates equipment funds for each existing full-time faculty and classified
position. These funds are used for faculty start-up packages, instructional equipment replacement, and other
workstation replacement. For faculty, universities are currently funded at $6,387 annually per faculty
position; NSC at $5,527; community colleges at $4,350; and all classified positions at $1,228 per position.
During the course of this project, it was explained that the operating amounts per FTE for each type of
institution was determined to be the average of each like institution's current operating expenditures per
FTE at the time the current formula was created. There does not seem to be any good reason for the
different amounts per faculty position, with the same amount per classified position. Differences in
operating allocations contribute to inequities in the formula; therefore, it is recommended that NSHE
consider that both the operating and wage costs per faculty FTE and the equipment funds per full-
time faculty person should be equal for the universities, NSC, and the colleges.
Performance Factors. The current Instruction formula is based on the number of credit hours for which
students are enrolled, rather than the credit hours earned or completed. The use of enrolled credit hours
“incents” the institutions to get more students into courses, but not to get the students through the courses
successfully. This is an unintended consequence of the formula.
Ohio, Indiana, Texas, Louisiana, and Tennessee are states that have begun to count credit hours completed
rather than enrolled credit hours. Ohio and Indiana both report that this change to a performance factor has
resulted in increased completions of degrees or certificate programs. Ohio is phasing in the change to
counting completions by use of a stop-loss feature in the funding formula. For the first year of changeover
to completed credit hours, institutions whose FTE count was less, resulting in a loss of funding, receive 99
percent of the amount under the traditional enrollment count; in the second year, 98 percent of funding is
guaranteed; and in the third year, 95 percent. By the fourth year of implementation, all stop-loss features are
eliminated.
It is recommended that NSHE consider through its formula revision process with appropriate
stakeholders whether the number of credit hours used in the instruction formula should be credit
hours completed instead of enrolled credit hours. Nevada easily could incorporate this performance
feature into its Instruction formula. Such a change would meet the criterion of “outcomes based.” This
change likely would be welcomed by legislators and the governors’ staff as they are consulted in the
revision process.
Rolling Average FTE. The use of the rolling three-year average student count has smoothed changes in
funding during those times when college or university enrollments are declining, and allowed institutional
managers time to plan for change. One of the criticisms that legislators, legislative staff, and the governor’s
staff have made about the formula is that the rolling average is not being used when enrollments are
increasing but only when some enrollments are declining. Since 2001, the NSHE has not had a time when
enrollment system-wide declined.
The rolling average FTE works well in times of consistency in enrollment and in funding, but does not
provide sufficient opportunity for planning in other economic times. It is recommended that consideration
be given to evaluating and potentially modifying the method of counting enrollment.
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Chapter 4
Evaluation of the Nevada Funding Formula
Complexity of the Formulas. Nevada’s instruction “formula” actually is comprised of five or six separate
formulas, depending on how the salary schedule is counted. Although Instruction is the most complex of all
the functional areas for which formulas exist. Nevada’s set of formulas is the most complex of all the states.
This may be the result of using formulas for equipment for existing and new positions that are consistent
with state government. In addition, the methodology used in the matrix – base factors with position ratios
and salary rates – is the most complex of any method used to calculate “need” in a functional area.
Other states collapse all of the costs that are in the additional formulas into the cost matrix, or have a
separate cost matrix for the operating costs of disciplines. It would be possible to establish a cost matrix that
would incorporate the additional costs. However, it may be that there is Nevada precedents to keep the
operating costs separate from the matrix that generates the number of faculty. It is recommended that
NSHE consider reducing the complexity of the Instruction component of the formula by
incorporating all cost calculations into one.
4.2.2 Research
This category includes expenditures for activities designed to produce research outcomes. Nevada does not
use a formula for research funding. Rather, funding is determined on an incremental basis. NSC and the
community colleges do not have a research mission. However, UNLV, UNR, and DRI all have a critical
research mission that was the topic of considerable discussion by business persons, legislators, and
economic development specialists. If Nevada is to use the universities as drivers of economic development,
then some funding for research likely is necessary. Funding could be used for start-up packages for new
researchers, for on-going equipment replacement or purchase of cutting-edge equipment.
The lack of a research component in the current formula does not meet several of the criteria established as
guiding principles for any change to the formula. This component currently is not “outcomes-based” or
“mission sensitive.”
A particular charge of this study is the following:
Evaluate and as appropriate identify and recommend formula attributes to consider that
would address mission differences. Without limiting the foregoing, this part of the
analysis should address funding for research.
Other states provide funding for the research mission of the system of higher education. The funding may
come in several ways: as a component of the basic funding formula; as performance funding; or as
incentive funding. One of the most successful ways of funding research has been the research incentive
funds of the Ohio Board of Regents. These funds are awarded to universities for increases in the amounts
of externally funded research. The OBOR staff indicates that this incentive funding has resulted in
hundreds of millions in increased research funding, much of which is directed to areas of special
statewide need.
Two sample research formulas follow. This type of formula would be included in the basic funding formula
calculation.
1. Research amount = 2% of outside funding for research.
2. Research amount = 2% of the sum of the formula amounts for instruction and academic
support plus 1% of sponsored research
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Chapter 4
Evaluation of the Nevada Funding Formula
Another alternative would be to set up a performance funding or incentive funding pool that only UNLV,
UNR, and DRI could access. As performance funding, an increase in outside research funding would result
in UNLV, UNR, or DRI having access to that part of the performance funding pool, if each reached their
annual goal for outside funding. For incentive funding, a separate pool would be set aside and each of the
organizations would share in that pool, if they met the objectives for research. Of course, the difficult part
would be in determining the size of the pool, what the goals were, and how the organizations would share.
MGT recommends that NSHE consider adding a component of the formula to recognize the research
mission of the System. Any of the three alternatives – component of the formula, part of performance
funding, incentive funding – would fulfill the mission sensitive criterion. Both the performance funding or
incentive funding component would meet both the mission sensitive and the outcomes based criteria.
4.2.3 Public Service
This category includes funds expended for activities that primarily provide non-instructional services to
individuals and groups external to the institution. Nevada does not have a formula for the public service
components of college and university operations. However, for workstation replacements for non-formula
budgets, which include Cooperative Extension, a public service activity of UNR, $1,228 is allocated for
each professional and classified FTE position. No change is recommended for this funding.
4.2.4 Academic Support
The category academic support includes funds expended to provide support services for the institution’s
primary missions of instruction, research, and public service. The area includes expenditures for libraries,
museums, and galleries; demonstration schools; media and technology, including computing support;
academic administration including deans; and separately budgeted course and curriculum development.
However, costs associated with the office of the chief academic officer of the campus are included in the
institutional support category. (NOTE: Nevada includes the costs of the chief academic officer in the
academic support category.)
A best-practice example of a simple and a more complicated academic support formula is shown below.
1. Academic support funding = 5% of instruction formula calculation
2. Academic support funding = $750,000 + 15% of instruction formula calculation +
$10 per undergraduate credit hour over 50,000 credit hours + $20 per masters credit
hour + $80 per doctoral credit hour + $5 per continuing education hour
Nevada’s funding formulas for Academic Support include separate calculations for library staffing,
operating and equipment, and other areas. For UNLV, UNR, and NSC, for the office of the chief
Academic Officer, base funding is provided for two professional positions and one classified position.
Additional positions are added based on the size of the faculty: 200 to 499 faculty FTE generate one
additional professional position and one additional classified position; more than 500 faculty FTE
generates two additional professional positions and two additional classified positions.
For the schools and colleges at UNLV, UNR, and NSC, base funding is provided for one professional
position (such as a dean) and one classified position. For 50 to 174 faculty FTE in the school or college
an additional professional and one additional classified position are added. More than 175 faculty FTE in
a school or college generates two additional professional positions and two additional classified positions.
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Chapter 4
Evaluation of the Nevada Funding Formula
New professional positions for the Academic Support function are added at Q1 of the academic salary
schedule for Professor, Rank 4, on a 12-month contract, plus associated fringe benefits. New classified
positions are added at Grade 27, Step 1, of the State’s employer paid compensation schedule, plus
associated fringe benefits.
For other Academic Support areas such as academic advisement, technology, and testing services, a
percentage of the Instruction budget is added, equal to 9.5 percent of the Instruction budget for UNLV
and UNR and 6.5 percent of the Instruction budget for NSC.
For the library, for UNLV, UNR, and NSC, staffing is determined by the number of volumes in the
library collection, adjusted by an inflation factor; 50 positions are allocated for the first 500,000 volumes.
One new position is added for every additional 16,000 volumes above 500,000. New positions generates
as a result of the formula are added at a 40:60 professional to classified ration; that is, for every five
positions added, two are professional positions and three are classified. New professional positions are
added at the mid-point of Q1 and Q2 of the salary schedule for an Assistant Professor, Rank 2, plus
associated fringe benefits. Classified positions are added at Grade 27, Step 1, of the State’s employer
paid compensation schedule, plus associated fringe benefits.
The Academic Support formula also provides for operating costs for the libraries at a predetermined rate,
adjusted at the inflation rate plus one percent. Universities are funded at $6,260 per FTE position for all
library positions, while NSC is funded at $4,913 per FTE library position.
Equipment funds for each classified and professional FTE is provided for workstation replacement at the
rate of $1,025 for each existing professional and classified position. One-time equipment funds for new
professional and classified positions are funded at $6,000 or $4,000 per new professional or classified
position, respectively.
For the community colleges, the Academic Support formula is based on a fixed percentage of the
Instruction budget. For GBC, 30 percent of the first $7.5 million of the Instruction budget, and 25 percent
of any Instruction budget over $7.5 million is allotted. Once GBC reaches 3,000 SFTE, the Academic
Support funding percentages will be consistent for all the community colleges. For CSN, WNC, and
TMCC, 22 percent of the Instruction budget is allocated.
One of the charges for this study is the following:
“Evaluate and as appropriate identify how administrative functions required for
institutions with multiple sites may be a component of a funding formula. Differentiate
between full campus-level operations and extended centers.”
For the community colleges, the Academic Support formula recognizes economies of scale by applying a
differential percentage of the Instruction budget for GBC. It might be contended that this differential
percentage also recognizes the special circumstances of the large service area and the extended centers
that GBC must operate to meet the needs of students. As such, the formula could be perceived as
adequate to recognize the additional costs of extended centers and distance education.
On the other hand, there is no recognition of any possible additional costs of full campus-level operations
in the Academic Support area at multiple campus sites. In other states where a community college has
more than one campus, there is no special or additional formula for Academic Support. Cost studies
indicate that the costs of having academic advisors located at multiple sites are covered within the
percentage formula allotment and are no different than if all the students were located on one campus.
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Chapter 4
Evaluation of the Nevada Funding Formula
Additionally, adding a dean or assistant/associate vice president or vice provost to head the instructional
component of a “branch” campus is perceived to be an inefficient use of resources.
Under the Clapp-Jordan formula, the universities, NSC, and the community colleges add volumes to
improve library collections. For the universities and NSC, the base number of volumes is 85,000, and to
that is added 125 volumes per faculty member, 20 volumes per FTE student, 610 volumes per
baccalaureate degree program, 10,000 volumes for each Master’s program without a doctoral program,
3,750 volumes for each master’s program with a doctoral program, and 31,250 volumes for each doctoral
program. For the community colleges, using the Learning Resources Center Standards for College
Libraries, community colleges are allotted 32,125 volumes for student FTE enrollment under 1,000; a
total of 55,250 volumes for student FTE enrolment between 1,000 and 3,000; a total of 79,100 total
volumes for student FTE enrollment between 3,001 and 5,000’ and 100,100 total volumes for student
FTE enrollment between 5,001 and 7,000. For each 1,000 student FTE enrollment over 7,001 an
additional 12,890 volumes are allotted.
The universities and NSC are given an annual acquisition rate of 4.3 percent of total collections, while the
colleges/community colleges are allotted 5.0 percent of total collections at an average cost per volume of
$118.
For the community colleges, the Academic Support formula follows the best practice formula, and does
include a consideration for the size of the college. No change is recommended for the community
college formula since it adequately provides resources that are linked to mission, are size-sensitive,
and are equitable in the distribution of resources.
For UNLV, UNR, and NSC, the formulas provide for economies of scale in the staffing and in the
libraries. Of concern, however, is the formula that provides support for other Academic Support areas
like advising. A higher percentage is provided for UNLV and UNR than for NSC. However, the makeup
of the student body at NSC is such that their students have greater needs for academic advising and other
academic support services such as tutoring and mentoring. In addition, the Instruction budget for NSC is
much smaller than that for UNLV and UNR because they have much larger student bodies. Because of
this greater need, it is recommended that NSHE consider increasing the percentage for NSC to 15
percent. This is a mission-sensitive adjustment that relates to the special needs of the students attending
NSC, many of whom are first-generation students with poor academic backgrounds.
The American Library Association is expected to publish new standards for academic libraries that
consider changes in technology and in the ways in which students now use libraries. When these new
standards come out, it is recommended that the Clapp-Jordan formula be replaced by the new
standards.
4.2.5 Student Services
This expenditure category includes funds expended to contribute to a student’s emotional and physical
well being and intellectual, social and cultural development outside of the formal instruction process.
This category includes expenditures for student activities, student organizations, counseling, the
registrar’s and admissions offices, and student financial aid administration.
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Chapter 4
Evaluation of the Nevada Funding Formula
Two sample student services formulas follow, both including consideration of economy of scale.
1. Student services funding = $395 per student for the first 4,000 headcount + $295 per
student for the next 4,000 headcount + $265 per student for all students over 8,000
headcount.
2. Student services funding = Base funding of $2,345,585 up to 4,000 headcount + $282
per student from 4,001 to 8,000 headcount + $255 per student over 8,000.
Nevada’s funding formula for Student Services provides funding based on the combined headcount and
SFTE enrollments. The existing combined number of FTE positions are subtracted from the formula-
generated positions to determine the number of new positions. New positions are distributed according to a
60:40 ratio of professional to classified positions; that is, for every five new positions, three would be
professional and two classified. Professional positions are added at the mid-point of Rank 2 on the
administrative salary schedule, plus associated fringe benefits. Classified positions are added at Grade 27,
Step 1, of the State’s employer-paid salary schedule, plus associated benefits.
New positions are determined by the following:
If the combined headcount and SFTE is equal to or less than 10,000:
Universities divide by 200;
NSC divide by 275
CSN,TMCC, and WNC divide by 350
Plus:
If the combined headcount and SFTE is greater than 10,000:
Universities divide by 350
NSC divide by 375
CSN, TMCC, and WNC divide by 400
For GBC:
If combined headcount and SFTE is equal to or below 4,500, divide by 210
Plus If combined headcount and SFTE is between 4,501 and 10,000, divide by 275
Plus If combined headcount and SFTE is between 10,001 and 25,000, divide by 375
Plus If combined headcount and SFTE is above 25,000, divide by 425.
The formula provides additional positions for Student Services based on one additional position for each
100 students residing in dormitories. This is a best practice that should be adopted by other states.
In addition to these calculations, Nevada’s Student Services formula has a unique component: funding to
cover compliance costs associated with the provisions of the Americans with Disabilities Act (ADA).
Institutions receive $1,000 for each student with a documented disability. This is a “best practice” and
should be emulated by other states although the dollar amount should be evaluated periodically based
on actual costs.
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Chapter 4
Evaluation of the Nevada Funding Formula
In addition to the components listed above, the Student Services formula also provides in a manner
consistent with the Instruction and Academic Support formula methodologies, funding for operating and
wage costs, workstation replacement, and new equipment for professional and classified employees.
The Nevada formulas for Student Services follow for the most part the “best practices” formulas of other
states, by including an economy of scale and fixed/variable cost factors, and by basing the count of students
on both headcount and full-time equivalent students. Costs of many student services such as advising or
tutoring are related to the number of headcount students; for example, each student receives advising no
matter how many credit hours the student is taking. Similarly some student services are related to the
number of credit hours, as measured by full-time equivalent students. The Nevada formula considers both
of these drivers of cost.
Similarly to Academic Support, the Student Services formula does not include an explicit component for
colleges or universities that operate multiple sites, whether those are centers or full-service campuses.
However, by including headcount students in the calculation, there is adequate consideration of the costs of
counseling, registering, advising, and admitting students. The best operational practices of other institutions
include only one admissions office, one registrar, and numbers of counselors/advisors consistent with the
number of students needing services.
The Nevada formula also includes two factors or drivers that other states should emulate: costs associated
with the provisions of ADA, and the number of students residing in dormitories or residence halls. Students
living on campus require additional resources to provide services “24/7” that commuting students do not
require.
However, the Nevada formulas do not consider the special needs of students who come under-prepared for
the rigors of a post-secondary education. NSC and the community colleges have a special mission in
providing services for this under-prepared population. The additional costs of providing extra services so
that students can be successful in their college careers is not included in the funding formulas. One method
that some states have used to generate resources for the extra costs of providing tutoring, advising, and
remedial courses (costs not covered in the Instruction component) is to allot a dollar amount per Pell Grant
recipient as a proxy measure of economic disadvantage. It is recommended that NSHE consider adding
an additional dollar amount per Pell-eligible student to recognize the costs of providing additional
services.
4.2.6 Institutional Support
This category includes expenditures for the central executive level management of an institution, fiscal
operations, administrative data processing, employee personnel services, and support services. Most
institutional support formulas recognized fixed and variable costs by including a base amount and a
specified amount per student or percent of base. Examples of “best practices” institutional support
formulas are shown below.
1. Institutional support = base amount + 15% of total E&G budget (excluding
institutional support)
2. Institutional support = 11% of total E & G formula amount (excluding institutional
support) for institutions with more than 8,000 headcount students or 15% of total E &
G formula amount (excluding institutional support) for institutions with less than
8,000 headcount students.
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Chapter 4
Evaluation of the Nevada Funding Formula
Nevada’s formula for Institutional Support follows one of the best practices formulas by multiplying a
percentage of each institution’s operating budget (less institutional support) including all applicable
appropriations such as the School of Medicine, Agriculture Experiment Station, Law School, or Dental
School.
For UNR and UNLV, institutional support is equal to 15 percent of the first $25 million plus 10 percent
of the second $25 million, and 7.5 percent of any operating budget over $50 million. For NSC,
institutional support is equal to 15 percent of the first $20 million in expenditures, plus 10 percent of the
second $20 million, and 7.5 percent of any budget over $40 million. For CSN and TMCC, the allocation
is equal to 15 percent of the first $17.5 million, while for GBC and WNC, the percentage is equal to 17
percent of the first $17.5 million; for all four colleges, 10 percent of the next $17.5 million is added, and
7.5 percent for those amounts above $35 million. Once GBC and WNC reach 3,000 SFTE, funding
percentages will be consistent with those of CSN and TMCC.
The current formula does not include differentiation for those institutions which have multiple sites,
whether those sites are centers or full campus-level operations. This is consistent with the formulas of
other states which consider economies of scale and provide differential funding based on mission. Cost
studies completed by other states indicate that there may be no additional Institutional Support costs to
the operation of multiple sites. This may be because the institution has only one president, one provost or
vice president for academic affairs, one student affairs vice president, etc. In addition, the additional
costs of more accountants, more human resource personnel, etc. are perceived to be covered within the
economies of scale allowances.
In addition to these amounts, the Institutional Support formula provides workstation replacement at
$1,228 for each existing employee, similar to the other functional areas discussed above.
The Nevada formula for Institutional Support considers the missions of the institutions, and differentiates
among the institutions based on their missions. In addition, the formula recognizes differences in the
complexity of a land-grant institution and other research universities. Economies of scale are considered
in the step-nature of the formulas. No changes to Institutional Support are recommended.
4.2.7 Operation and Maintenance of Physical Plant
This category includes all expenditures for current operations and maintenance of the physical plant,
including building maintenance, custodial services, utilities, landscape and grounds, and building repairs.
Not included are expenditures made from Plant Fund accounts (for items such as building construction
and major renovation, purchase of lands, etc.), or expenditures for operations and maintenance of the
physical plant component of hospitals, auxiliary enterprises, or independent operations. This is the only
component of the formula in which the Desert Research Institute participates
Examples of best practice formulas for plant operations follow. Although this set of formulas is more
detailed than a simple rate per gross square foot, it recognizes that there are important differences in a
campus’ physical facilities that impact on cost.
1. Plant funding = the sum of Building Maintenance + Custodial Services +Grounds
Maintenance + Utilities
Where: Building Maintenance = a maintenance cost factor times the replacement cost
of the building, and the maintenance cost factor varies by type of construction and
whether or not the building is air-conditioned;
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Chapter 4
Evaluation of the Nevada Funding Formula
Custodial services = square footage divided by the average square footage maintained
by one person per year times a salary rate;
Grounds maintenance = rate times the number of acres maintained; and Utilities =
actual prior year expenditures, adjusted for inflation and other cost Increases.
2. Plant funding = $4.17 times the number of category I GSF space + $3.44 times the
number of Category II GSF + $5.54 times the number of health care GSF + utilities +
$2,267 per acre maintained + lease costs – 25% of indirect cost recovery funding
Nevada’s methodology for funding physical plant operations and maintenance includes both formula
components and non-formula components. Allocations for utilities, insurance, and rental or lease costs
are not formula driven and are budgeted separately based on consumption, rate changes, contractual
agreements, and addition or subtraction of any facilities. The formula components include custodial,
building maintenance, supervisory and technical personnel, and grounds maintenance personnel. Funding
is provided for professional and classified positions, general operating costs, equipment for new positions,
and workstation replacements. Funding level is determined by the gross maintained square feet of space,
number of improved acres, an average cost per square foot of space, and the age of the buildings.
The formula generates one new position for every 10,500 gross square feet of maintained space at an
institution, with a 10 percent adjustment to building maintenance and services positions to provide
additional funding for the increased costs of maintaining older buildings (over 25 years old). New
positions are distributed across types of personnel by allocating 42.86 percent of total positions as
custodial at Grade 21, step 1, plus fringe benefits; 42.86 percent of total positions as maintenance at
Grade 31, step 1, plus fringe benefits; and 14.28 percent of total new positions as professional/technical
funded at the midpoint of Rank 2 for UNLV, UNR, and NSC and at Grade 7 (colleges) on the
administrative salary schedule, plus fringe benefits. A new grounds position at Grade 22, step 1, plus
fringe benefits, is allocated for every 4.5 improved acres.
For general operating costs of the plant, $1.02 per gross square foot of maintained space is allotted, with
$1.28 allocated for gross square footage in buildings over 25 years old. For workstation replacement and
new equipment for professional and classified employments, funding is provided in a manner consistent
with other functional areas.
These formulas recognize the differences in the missions of the institutions by allocating funding based
on gross square feet. There are different space requirements for a land-grant institution that result in
additional square footage. Similarly, the space requirements for a community college are different from
those for a state college or a research university. Allotting funding based on square footage of maintained
space and improved acreage considers these differences. In addition, adjustments are made for the age of
the building, and are appropriate if major renovations or updates to a building change the “age” as
recognized in the formula.
Utilities costs vary by location within Nevada, in part because utilities are provided by different suppliers.
Institutions in the southern part of the state need more air conditioning while institutions in the north
require more heating. Funding actual utility costs considers these differences although basing costs on
past years’ costs without adjustments for changes in rates or inflation is not the best method.
Despite institutional concerns about inequities in the Physical Plant formula, MGT did not find that the
formula resulted in inequitable distribution of resources. Therefore, no change is recommended for the
Physical Plant formula.
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Chapter 4
Evaluation of the Nevada Funding Formula
4.2.8 Scholarships and Fellowships
This category encompasses all expenditures for scholarships and fellowships, including prizes, awards,
federal grants, tuition and fee waivers, and other aid awarded to students for which services to the institution
are not required. Nevada does not have a formula for scholarships and fellowships. No change is
recommended at this time, although this is certainly an important issue to consider in the context of
affordability of higher education and access. It is unlikely that the State’s fiscal condition will permit an
increase in funding for the institutions to provide student financial aid.
4.2.9 Revenue Components
There are two sides in the calculation of funding formulas for higher education; the needs of the
institution, and the resources to fund those needs. Many of the states that use funding formulas in the
resource allocation process calculate the need to be funded only by state revenues. Others calculate a
total resource need that is funded by a combination of state and institutional resources. Institutional
resources may be tuition and registration fees, tuition and all fees, or tuition/fees and other institutional
resources such as investment income. States like Virginia and North Carolina established percentage
shares of the total need to be funded by different stakeholders. For example, in North Carolina, for
community colleges, it was expected that the state would fund one-third of the needs, the local share
would be one-third, and students (as represented by the college) would fund one-third. Nevada’s
community colleges do not have a local funding component, so that the North Carolina formula
calculation as applied to Nevada would have the state funding two-thirds of the “need” and the institution
funding one-third.
Where the resources to fund needs include tuition or other institutional revenues, the amount of those
institutional resources may be called a “revenue deduction component.” The most common calculation of
the revenue deduction component is a percentage or all of non-resident tuition and fees.
Nevada’s formula calculates an amount of need that is funded by a combination of state and institutional
resources. The formula has not ever been “fully funded,” meaning that the combination of state and
institutional resources has not equaled the total amount of “need” as calculated by the funding formula.
Exhibit 4-6 displays funding as a percent of formula for the last two biennia, and shows a significant
decline in funding from 85.5 percent of the formula amounts to 74.1 percent.
EXHIBIT 4-6
Funding As A Percent Of Formula
2007-08 2008-09 2009-10 2010-11
85.50% 85.50% 74.10% 74.12%
The percentage share of the total formula amount supported by the institutions (as opposed to the state)
varies among the Nevada colleges and universities. This variance has been some cause for concern by the
institutions, who consider this element of the formula to be inequitable. The perception exists that there is
no point for the colleges and universities to increase their tuition and registration fees since all the
increased revenues would be a deduction from state funds.
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Chapter 4
Evaluation of the Nevada Funding Formula
Of course, when the State’s budget is experiencing as large a shortfall as Nevada’s, reductions to state
funding of college and university budgets are to be expected. However, the opportunity to ameliorate
those reductions by increasing tuition and fees appears to be limited in Nevada.
As mentioned earlier, one method that other states have used successfully to balance the revenues
between the state support and institutional or student support is to set a percentage of the formula budget
that is to be supported by the state and by the student/institution. Historically, these percentages have
been related to the benefits of higher education that accrue to the state and to the students and their
families. For example, Virginia set funding for community colleges as one-third, one-third, one-third as
did North Carolina. Nevada does not have a local tax to support community colleges, and so the
comparable proportions in Nevada would be state two-thirds and college one-third.
For state or regional colleges, Virginia set the percentage of the formula amount to be provided by the
state at 70 percent, and for the college/university at 30 percent. For the research universities, the
percentage originally was set at 65 percent for state support of the formula amounts, and 35 percent for
the university. However, as state budgets eroded, these percentages have eroded, and no longer are used
in the computation of institutional support of the budget.
One option would be for Nevada to establish specified percentages of the formula budget to be provided
by the State and by students/the institution. From the theoretical perspective, the State and local
communities derive 67 percent of the benefits from a student’s attendance at a community college. These
benefits include increased civic responsibility, lower crime rates, greater civic participation, among other
benefits. For NSC, the ratio could be set at 65 percent state and 35 percent student/institution; while for
UNR and UNLV the percentages could be set at 60 percent state and 40 percent institution. In light of the
State’s fiscal crisis, these percentages likely would have to be adjusted until the State’s fiscal condition
improved.
Another option would be to examine the ability of the institutions to support a portion of the budget.
Each of the institutions has a different capacity to raise resources, based in part on the economic condition
of their students and in part on the percentage of out-of-state students. Some states like South Carolina
subtract from the “resource need” an amount equal to “tuition” of out-of-state students. The “tuition” is
equal to the difference between in-state and out-of-state mandatory registration and other fees. Alabama
deducted an amount equal to the out-of-state tuition and fees per credit hour for each credit hour that out-
of-state students paid. For in-state students, Alabama deducted a percentage of the average state tuition
per credit hour times the number of credit hours generated by in-state students. Alabama used the average
statewide credit hour charge because institutions had the ability to set their own tuition rates. The
percentage deduction varied by type of institution.
A third option would be to set the amounts deducted in the current budget as a base deduction, and adjust
that amount based on a percentage of any increase in tuition and fees or changes in the number of
students. This would provide that the institutions could retain a portion of any increase in fees while still
providing a portion of the increase to the State.
A fourth option is to use some combination of the above. For example, the institution’s portion of the
resource need could be set equal to a specified percent of the calculated need, less a percentage of the
revenue from out-of-state students. In that way, the institution’s ability to pay would be considered.
MGT recommends that NSHE consider with the Legislature and other appropriate stakeholders a
modified method of calculating the institutions’ support of the budget.
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Chapter 4
Evaluation of the Nevada Funding Formula
4.2.10 Other Components, Including Performance or Incentive Funding
In the past two years, there has been a national focus on performance, and in increasing the numbers of
college “completers” as a means of improving the economy. From the White House to state houses to
foundations such as the Bill and Melinda Gates Foundation and the Lumina Foundation, the demand has
been made for increased graduation rates, at lower costs for students, and at a lower cost to taxpayers. The
economic crisis of the states led to demands for graduation of more students, with higher quality educations,
more efficiently, and more quickly.1
This shift in focus away from the “needs” of the college or university to allocation methods that are
student-centered, or based on measures of “success,” is a sea change in college and university formula
funding. Measures of success in this case relate to student success and institutional success in meeting the
needs of the state or local community. In this time of financial crisis, there appears to be a much greater
recognition of the fact that higher education is a major driver of the economy and that the state and local
communities need higher education to provide educated citizens with their greater earning power and ability
to pay more in taxes, as well as the other benefits of higher education, including the transfer of knowledge.
Policymakers appear to believe that higher education budgets are not aligned with state or local priorities,
and want institutions to produce “graduates” in high-demand fields like nursing or teaching.
To introduce components into the Nevada funding formula that will address performance as well as incent
institutions to produce certain results, it is recommended that NSHE consider in its process for revising
the formula two components to add to the funding formulas: a performance funding component and
an incentive funding component.
4.2.10.1 Performance Funding
To introduce performance funding into the Nevada formulas for higher education, MGT recommends
that NSHE consider two components:
1. Count student credit hours completed, not credit hour enrollments.
2. Provide a performance pool equal to a portion of an institution’s budget, which shall sit
in a separate fund to be distributed to the institutions as earned. These funds shall be
one-time funds that are allocated each year, and distributed by the Regents when
institutions meet certain performance standards.
Institutions, including DRI, would receive a percent, up to two percent, of their allocation if they
achieved certain goals on a set of five performance measures. Two of the performance measures would be
the same for all institutions except DRI which has no students, and the other three would be chosen by the
institution and reflective of the institution’s unique mission and goals. Each institution would be able to
assign weights to each measure that are the institution’s assignment of priorities. For example, UNR could
assign weights of 40 percent to a measure of outside research funding, 10 percent to increases in the
graduation rate, 25 percent to increases in second-year retention, 15 percent to increases in the number of
faculty publications in refereed journals, and 20 percent to increases in the number of members of national
academies. Then UNR would get that part of their incentive pool related only to those measures they
achieved or exceeded their goals.
1 Albright, Brenda. 2010. “Reinventing Higher Education Funding Policies: Performance Funding 2.0 – Funding Degrees” paper
for the Making Opportunity Affordable Initiative of the Lumina Foundation.
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Chapter 4
Evaluation of the Nevada Funding Formula
For all funds left over or not earned after all institutions had drawn their share, the remaining funds
would be distributed to the successful institutions based on their proportionate share of budget/formula
funding weighted by their performance. The new pool of funding does not do away with the underlying
principles of equity, responsiveness, or adequacy, but rather calculates the amount of funding by including
some different variables. The performance funding would give institutions flexibility in reaching the goals.
A small proportion of the overall budget is allocated based on performance, but measures consider the
differences between institutions and their students. This new model would have to be phased in over time,
to give institutions time to change and realign their priorities.
Another option for the community colleges is to copy the strategy employed by the Washington
State Board for Community and Technical Colleges (WSBCTE). In 2006, WSBCTE adopted a new
performance funding system for the community and technical colleges. The system was based on work
done by Teachers College Columbia University funded by the Bill and Melinda Gates Foundation that
identified “momentum points” which are times in a student’s college education that lead to continued
success. These points have also been called “tipping points.”
These points are key academic benchmarks that students meet that lead to successful completion of
degrees and certificates. There are four categories of momentum points: building toward college levels
skills, first year retention, completing college level math, and completion. These intermediate points in a
college career provide “momentum” toward completion Momentum points directly measure results.
These measures have been used by WSBCTE: test score gains on basic skills tests, or earning a GED;
passing a remedial math or writing course; earning 15 credit hours; earning 30 credit hours; completing
five credit hours of college level math; earning a degree, completing an apprenticeship, or earning a
certificate. Colleges are awarded one point for each momentum point earned above the previous year
level of performance. Funding is set at a flat dollar amount for each point and if available funding does
not cover all rewards, points are banked for the following year. All awards become part of the
institution’s base, and if the college’s enrollment declines, momentum points are pro-rated.2 The use of
momentum points for the four community colleges is an option or alternative to performance funding.
4.2.10.2 Incentive Funding
Another component of funding that is tied directly to state goals is incentive funding. Under
incentive funding each institution would be eligible to compete for funds in a pool set aside for achieving
certain goals. For example, Ohio has used incentive funding to increase the amount of outside research
funding that the institutions receive. Indiana has used incentive funding to encourage institutions to
graduate or complete more students.
An incentive pool is a set-aside of funds which are distributed based on successful attainment of
certain goals. In Indiana, incentive funding was established as a pool to graduate certain groups of students,
including Pell Grant recipients or students in the science, technology, engineering or mathematics (STEM)
fields. Each graduate in STEM or each Pell graduate “earned” the institution several thousand dollars. If
more students in the qualifying fields graduated than the pool was designed to support, each institution
received a pro-rated share of the pool. If less than the expected number completed, then any remaining
funds in the pool carried over to the next year.
2 Washington State Board for Community and Technical Colleges, “Student Achievement Initiative,” downloaded from
WSBCTC web site, May, 2010.
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Chapter 4
Evaluation of the Nevada Funding Formula
Ohio set up incentive pools for extramural funding of grants and contracts, for graduation in certain
fields, and for completion of certain certificate or training programs that were considered essential to
economic development. A pool of funds was established, and each institution “succeeding” shared in the
pool in proportion to its percentage share of graduates or grants. North Dakota also has established
incentive pools.
Nevada could establish pools that were linked to state needs, such as nursing graduates or teachers or
mining engineers or research funding in specific fields. Each institution that “succeeded” in its goal would
share in the pool. Likely, such a pool of funds would not be established in the current economic
environment, but could be phased in. DRI would be eligible for participation in this pool of funds.
4.2.10.3 Inequity in the Base
The current study was not an equity study; MGT was not engaged to evaluate whether or not
institutions were being equitably funded. As MGT interviewed stakeholders across the State, considerable
discussion centered around the issue of the equity in the funding base.
Nevada’s funding formula is essentially a “base plus (or minus)” formula; that is, funding is
determined by comparing resource levels for the budget year to the levels of the prior year, and making
adjustments to the funding level based on the change in resource requirements. Consequently, if the base
level of funding is not equitable among the institutions, then making changes to the funding from an
inequitable base will perpetuate inequity, unless other allocations are made.
MGT understands that the original formulation of the current funding formula or funding model was
designed to be equitable. In addition, certain equity adjustments have been made to the base over time, as
mentioned in sections above and as recently as the current fiscal year.
MGT has recommended that NSHE consider changes to the formula calculations that will make the
formula going forward more equitable than the current calculations. Because MGT did not do an equity
study, MGT cannot make valid observations based on reliable data on the equity of the base. We would be
pleased to complete an equity study, but that is not a component of this engagement. We will note,
however, that “equity studies” that compare funding per FTE student do not adequately measure “equity” in
the distribution of resources among the Nevada institutions. There are many legitimate reasons why funding
per student varies among the institutions.
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Chapter 5
Summary
To evaluate the current funding formula, MGT was guided by the following requirements of the
engagement to complete the following:
Analyze the “drivers” for the formula which include (but are not limited to) enrollment
(FTE), student to faculty ratios for program costs (allowing for the range of
developmental to professional programs) and rural and small college considerations.
Evaluate and as appropriate identify and recommend formula attributes to consider
that would address mission differences. Without limiting the foregoing, this part of the
analysis should address funding for research.
Identify if, and how, performance standards and outcomes could be included in the
funding formula.
Evaluate and as appropriate identify how administrative functions required for
institutions with multiple sites may be a component of a funding formula.
Differentiate between full campus-level operations and extended centers.
Include in the analysis specific alternatives for recommended changes, additions, or
modifications to the NSHE formula, including best practices from funding models of
other states or higher education systems.
This chapter of the report summarizes the areas that MGT has identified that merit consideration for
possible changes, additions, or modifications to the formula components as NSHE engages in its process
with appropriate stakeholders, including the institutions, the Legislature, and the Governor’s office.
Any alternative to the current funding model was evaluated by the following criteria that the presidents and
Chancellor of the Nevada System of Higher Education identified to guide the development of a funding
model:
Outcomes-based;
Mission-sensitive;
Size-sensitive;
Adaptable to economic conditions;
Equitable; and
Reliant on valid and reliable data.
The current Nevada funding model or “formula” is multi-faceted and has evolved over the last thirty years
into a complex funding model with multiple components related to functional areas of a college or
university budget. Overall, the judgment could be made that the formula’s many components work
together to satisfy most of the criteria determined by the System staff and presidents as the important
criteria for a formula, with the exception of “outcomes-based.” The current funding model does not have
a performance component, or an incentive funding component, and could be improved by additions or
changes to incorporate performance. There is no linkage to the goals for the colleges and universities,
nor any measure of accomplishment, and no link to performance standards.
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Chapter 5
Summary
Moreover, multiple improvements can be made to the Nevada model to make it more mission-sensitive,
size-sensitive, adaptable, and equitable. Any of these possible options for changes should be examined in
Nevada’s usual orderly process for changes to the higher education formula funding through the
legislative interim study committees, and should include consultation with all appropriate stakeholders.
5.0 Instruction
There are multiple components of the Instruction formulas that merit attention: the taxonomy matrix,
classification of courses within the taxonomy matrix, remedial classes; faculty mix between full-time and
part-time, lower division differentiation of costs by sector, doctoral discipline costs, operational cost factors,
productivity factors, rolling average FTE, and the complexity of the Instruction formulas. Instructional
costs for multi-campus operations are no different than for single campus operations, as the costs of
instructional salaries are the same. Therefore, the issue of multi-campus operations will be discussed under
other components of the funding model.
Credit Hour Matrix (Taxonomy). The first issue is the credit hour matrix, which collapses all credit hours
by discipline and level of instruction into what has been called a four-by-four or 16-cell matrix (four cost
categories and four levels of instruction). The matrix is actually a twelve-by-four matrix. The purpose of
the matrix is to recognize differences in the cost of instruction that vary by discipline, by size and type of
institution, and by level of instruction. Credit hours earned in the Schools of Medicine, Dentistry, and Law
are not included in this matrix.
Cost matrices generally are the result of cost studies, but Nevada does not do a periodic cost study; any
changes to the matrix will have to rely on cost studies done by other states. In other states, disciplines are
not necessarily in the same cost category across all four levels of instruction; doctoral costs are placed into
the cost categories not just one as the current Nevada matrix places disciplines.
Using the cost studies from other states, there are a number of classifications into which academic programs
may be placed. Nevada also could take an average across all the cost studies and place disciplines into a
four-by-four matrix, a three-by-four matrix, or even an eight-by-four matrix, all of which would be simpler
than the current matrix. MGT recommends that NSHE work with appropriate stakeholders to
determine an instruction matrix that would more closely approximate the current cost of these
courses. Included in the cost matrix would be a differentiation of the costs of doctoral programs.
New student-faculty ratios that are consistent with the costs of providing services should be included
in the matrix.
The current matrix does include a provision to recognize differences in the sizes of the institutions, in that
there are different ratios for the smaller community colleges. This is an important component of the matrix,
and should be continued in some manner to recognize economies of scale. Such a factor could be done by
keeping the student-faculty ratios the same across all institutional sizes and including a base amount
for institutions under a certain size.
Classification of Disciplines within the Taxonomy Matrix. Correct placement of courses in the matrix is
critical to the validity and equity of the formula. Currently, all distance education courses are defined as
high cost.
MGT recommends that NSHE consider placing only those distance education credit hours that are
two-way interactive video in the “high cost” category. All other distance education would be placed in
the appropriate discipline category.
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Remedial Courses. Currently courses that are remedial in nature, or not at the college level, are not
included in the formula for UNR or UNLV, but are included in the discipline mix for NSC and the four
community colleges. MGT recommends that the NSHE consider allocating an additional instructional
faculty person and one-half an FTE staff person at NSC, GBC, WNC, TMCC, and CSN for each 80
successful remedial course completions. Faculty salary amounts and other allocations could be computed
as in the other components of the Instruction formula.
Faculty Mix and Differentiation of Lower Division Courses. For the universities and state college, the
faculty numbers generated by the formula are all considered to be full-time positions. At the community
colleges, 60 percent of the faculty positions are assumed to be full-time and the remaining 40 percent are
part-time. Part-time faculty positions are funded at 60 percent of the full-time faculty salary.
It is recommended that NSHE consider in its discussions with appropriate stakeholders that new FTE
faculty positions generated by the formula calculation be 100 percent full-time positions. Of course,
this change will have an impact on the total funding requirement for the formula since these positions will
be funded at 100 percent of the salary cost, instead of the current 84 percent (60% + 60% of 40%). This
change will make the formula more equitable, and addresses the criterion “outcomes based.”
Operational Factors. The current formula provides different amounts for operating and wage costs at a
predetermined amount which is adjusted at the inflation rate plus 1 percent. Currently, universities are
funded at $7,368 per faculty FTE; NSC at $6,141 per faculty FTE; community colleges at $5,650 per faculty
FTE; and classified staff at $2,825 per FTE for all institutions. Differences in operating allocations
contribute to inequities in the formula; therefore, it is recommended that NSHE consider that both the
operating and wage costs per faculty FTE and the equipment funds per full-time faculty person
should be equal for the universities, NSC, and the colleges.
Performance Factors. The current Instruction formula is based on the number of credit hours for which
students are enrolled, rather than the credit hours earned or completed. The use of enrolled credit hours
“incents” the institutions to get more students into courses, but not to get the students through the courses
successfully. This is an unintended consequence of the formula.
It is recommended that NSHE consider through its formula revision process with appropriate
stakeholders whether the number of credit hours used in the instruction formula should be credit
hours completed instead of enrolled credit hours. Nevada easily could incorporate this performance
feature into its Instruction formula. Such a change would meet the criterion of “outcomes based.”
Rolling Average FTE. The use of the rolling three-year average student count has smoothed changes in
funding during those times when college or university enrollments are declining, and allowed institutional
managers time to plan for change. One of the criticisms that legislators, legislative staff, and the governor’s
staff have made about the formula is that the rolling average is not being used when enrollments are
increasing but only when some enrollments are declining. Since 2001, the NSHE has not had a time when
enrollment system-wide declined. The rolling average FTE works well in times of consistency in
enrollment and in funding, but does not provide sufficient opportunity for planning in other economic times.
It is recommended that consideration be given to evaluating and potentially modifying the method of
counting enrollment.
Complexity of the Formulas. Nevada’s instruction “formula” actually is comprised of five or six separate
formulas, depending on how the salary schedule is counted. Although Instruction is the most complex of all
the functional areas for which formulas exist. Nevada’s set of formulas is the most complex of all the states.
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It is recommended that NSHE consider reducing the complexity of the Instruction component of the
formula by incorporating all cost calculations into one.
5.1 Research
Nevada currently does not use a formula for research funding. Rather, funding is determined on an
incremental basis. The lack of a research component in the current formula does not meet several of the
criteria established as guiding principles for any change to the formula. This component currently is not
“outcomes-based” or “mission sensitive.”
MGT recommends that NSHE consider adding a component of the formula to recognize the research
mission of the System. Any of three alternatives – component of the formula, part of performance funding,
or incentive funding – would fulfill the mission sensitive criterion. Either the performance funding or
incentive funding component would meet both the mission sensitive and the outcomes based criteria.
5.2 Public Service
No change is recommended for this funding.
5.3 Academic Support
Nevada’s funding formulas for Academic Support include separate calculations for library staffing,
operating and equipment, and other areas. For the community colleges, the Academic Support formula
recognizes economies of scale by applying a differential percentage of the Instruction budget for GBC
and could be perceived as adequate to recognize the additional costs of extended centers and distance
education.
On the other hand, there is no recognition of any possible additional costs of full campus-level operations
in the Academic Support area at multiple campus sites. In other states where a community college has
more than one campus, there is no special or additional formula for Academic Support. For the
community colleges, the Academic Support formula follows the best practice formula, and does include a
consideration for the size of the college. No change is recommended for the community college
formula since it adequately provides resources that are linked to mission, are size-sensitive, and are
equitable in the distribution of resources.
For UNLV, UNR, and NSC, the formulas provide for economies of scale in the staffing and in the
libraries. It is recommended that NSHE consider increasing the percentage for NSC to 15 percent.
This is a mission-sensitive adjustment that relates to the special needs of the students attending NSC,
many of whom are first-generation students with poor academic backgrounds.
The American Library Association is expected to publish new standards for academic libraries that
consider changes in technology and in the ways in which students now use libraries. When these new
standards come out, it is recommended that the Clapp-Jordan formula be replaced by the new
standards.
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5.4 Student Services
Nevada’s funding formula for Student Services provides funding based on the combined headcount and
SFTE enrollments. The formula provides additional positions for Student Services based on one additional
position for each 100 students residing in dormitories. This is a best practice that should be adopted by
other states. In addition to these calculations, Nevada’s Student Services formula has a unique component:
funding to cover compliance costs associated with the provisions of the Americans with Disabilities Act
(ADA). Institutions receive $1,000 for each student with a documented disability. This is a “best
practice” and should be emulated by other states although the dollar amount should be periodically
evaluated based on actual costs.
The Nevada formulas for Student Services follow for the most part the “best practices” formulas of other
states, by including an economy of scale and fixed/variable cost factors, and by basing the count of students
on both headcount and full-time equivalent students. Similarly to Academic Support, the Student Services
formula does not include an explicit component for colleges or universities that operate multiple sites,
whether those are centers or full-service campuses. However, by including headcount students in the
calculation, there is adequate consideration of the costs of counseling, registering, advising, and admitting
students. The best operational practices of other institutions include only one admissions office, one
registrar, and numbers of counselors/advisors consistent with the number of students needing services.
However, the Nevada formulas do not consider the special needs of students who come under-prepared for
the rigors of a post-secondary education. It is recommended that NSHE consider adding an additional
dollar amount per Pell-eligible student to recognize the costs of providing additional services.
5.5 Institutional Support
Nevada’s formula for Institutional Support follows one of the best practices formulas by multiplying a
percentage of each institution’s operating budget (less institutional support) including all applicable
appropriations such as the School of Medicine, Agriculture Experiment Station, Law School, or Dental
School. The current formula does not include differentiation for those institutions which have multiple
sites, whether those sites are centers or full campus-level operations. This is consistent with the formulas
of other states which consider economies of scale and provide differential funding based on mission.
No changes to Institutional Support are recommended.
5.6 Operation and Maintenance of Physical Plant
Nevada’s methodology for funding physical plant operations and maintenance includes both formula
components and non-formula components. These formulas recognize the differences in the missions of
the institutions by allocating funding based on gross square feet. It should be noted that this is the only
function of the formula in which the Desert Research Institute participates. No change is recommended
for the Physical Plant formula.
5.7 Scholarships and Fellowships
Nevada does not have a formula for scholarships and fellowships. No change is recommended at this
time, although this is certainly an important issue to consider in the context of affordability of higher
education and access.
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5.8 Revenue Components
There are two sides in the calculation of funding formulas for higher education; the needs of the
institution, and the resources to fund those needs. Many of the states that use funding formulas in the
resource allocation process calculate the need to be funded only by state revenues. Others calculate a
total resource need that is funded by a combination of state and institutional resources (for example,
student fees and tuition). Nevada’s formula calculates an amount of need that is funded by a combination
of state and institutional resources. The formula has not ever been “fully funded,” meaning that the
combination of state and institutional resources has not equaled the total amount of “need” as calculated
by the funding formula.
MGT recommends that NSHE consider with the Legislature and other appropriate stakeholders a
modified method of calculating the institutions’ support of the budget.
5.9 Other Components, Including Performance or Incentive Funding
To introduce components into the Nevada funding formula that will address performance as well as incent
institutions to produce certain results, it is recommended that NSHE consider in its process for revising
the formula two components to add to the funding formulas: a performance funding component and
an incentive funding component.
5.9.1 Performance Funding
To introduce performance funding into the Nevada formulas for higher education, MGT recommends that
NSHE consider two components:
1. Count student credit hours completed, not credit hour enrollments.
2. Provide a performance pool equal to a portion of an institution’s budget, which
shall sit in a separate fund to be distributed to the institutions as earned. These
funds shall be one-time funds that are allocated each year, and distributed by the
Regents when institutions meet certain performance standards.
Another option for the community colleges is to copy the strategy employed by the Washington State
Board for Community and Technical Colleges (WSBCTE) using “momentum points” which are times in
a student’s college education that lead to continued success.
5.9.2 Incentive Funding
Another component of funding that is tied directly to state goal is incentive funding. Under incentive
funding each institution would be eligible to compete for funds in a pool set aside for achieving certain
goals. Nevada could establish pools that were linked to state needs, such as nursing graduates or teachers or
mining engineers or research funding in specific fields. Each institution that “succeeded” in its goal would
share in the pool. Likely, such a pool of funds would not be established in the current economic
environment, but could be phased in. DRI would be eligible for participation in this pool of funds.
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5.10 Summary Of Options
MGT has identified a number of areas within the Nevada funding methodology that merit consideration
for changes to or improvement on the formula(s) during the NSHE/legislative formula revision process.
The following is a summary by functional area.
Instruction:
There are two main options for the Instruction functional area:
1. Modify the taxonomy matrix, keeping all the separate calculations (with optional
changes to the separate calculations); or
2. Modify the matrix, including all calculations in one formula to simplify the
methodology.
Within those two main options, there are many “sub-options” related to the matrix:
the size of the matrix; i.e., 4 by 4, or 8 by 4, or 3 by 4, or 12 by 4.
use of credit hour costs or student-faculty ratios.
placement of disciplines within the matrix, including across levels of instruction.
placement of distance education courses.
student-faculty ratios/credit hour costs for lower division courses.
base funding for small institutions.
funding for remedial education.
calculation of credit hour costs/weights or student-faculty ratios
use of the rolling average FTE or credit hours.
use of a performance factor such as completed credit hours.
In addition, if the decision is made to stay with multiple components, an option for equating the formula
for operating and wage costs should be considered.
Research:
Three options are provided for adding a research component to the formula for UNR, UNLV, and DRI:
part of the formula, a performance funding, or incentive funding component.
Public Service, Scholarships and Fellowships, Institutional Support, Physical Plant:
No changes.
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Academic Support:
Replace the Clapp-Jordan formula with the recommendations of the American Library Association when
those recommendations are issued.
Increase the percentage of the instruction budget allocated to NSC for other academic support.
Student Services:
Include for the universities, community colleges, and NSC a factor that provides funds based on the
number of Pell Grant recipients or some other measure of “need”
Revenue Components:
Consider with the Legislature and other appropriate stakeholders a modified method of calculating the
institutions’ support of the budget. Four options were identified for consideration:
1. Establish specific percentages of the formula budget to be funded by state funds.
2. Deduct out-of-state student tuition, or a portion of out-of-state student revenues.
3. Use the current percentages, as updated for changes in the number of students and
fees.
4. Use some combination of 1-3.
Performance Funding:
Establish a pool of a portion of appropriations to be used to “reward” institutions for performance on a set
of five performance indicators, two of which are established state-wide (except for DRI) and three of
which are institution-specific (all five would be specific for DRI), with weights for each indicator
determined by the Chancellor in consultation with the institution’s president. OR
For the community colleges, use momentum points.
Incentive Funding:
Establish an incentive pool of state funds to “incent” college, university, and DRI performance in meeting
state needs.
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Appendix A
Individuals Interviewed
Name Title Organization
Abba, Crystal Assoc. Vice Chancellor for
Academic& Student Affairs
NSHE
Aguero, Jeremy Principal Applied Analysis
Alvey, Chuck President Economic Development
Authority of Western Nevada
Bomotti, Gerry Vice President Finance and
Business
University of Nevada Las Vegas
Bostdorff, Richard Consultant
Burke, Brian Legislative Counsel Bureau
Burton, Chet Controller Western Nevada College
Calder, Curtis City Manager City of Elko
Carreon, Jesus "Jess" Vice President Academic Affairs
and Student Services
Truckee Meadows Community
College
Charlton, Patty Vice President College of Southern Nevada
Conklin, Marcus Assemblyman Nevada Legislature
Cooper, Jeff Owner Casino
Crowley, Joe President Emeritus University of Nevada Reno
Denis, Mo Assemblyman Nevada Legislature
Diekhans, Carl President Great Basin College
DiMare, Lesley Interim President Nevada State College
Dwyer, Katie Budget Analyst Truckee Meadows Community
College
Eardley, Larry Assistant Vice Chancellor NSHE
Edwards, Laura Assistant Professor Desert Research Institute
Gallagher, Dorothy Regent NSHE
Gansert, Heidi Assemblywoman Nevada Legislature
Geddes, Jason Regent NSHE
Glick, Milton President University of Nevada Reno
Haartz, Alex Legislative Counsel Bureau
Hardy, Joe Assemblyman Nevada Legislature
Harter, Carol President Emeritus University of Nevada Las Vegas
Herzik, Eric Faculty Senate Chair University of Nevada Reno
Horsford, Steven Senator Nevada Legislature
Huber, Scott Faculty Senate Chair Truckee Meadows Community
College
Hurlins, Robin Faculty Senate Chair Nevada State College
Jessup, Don Former Vice Chancellor for
Finance
NSHE
Johnson, Marc Executive Vice President and
Provost
University of Nevada Reno
Klaich, Daniel Chancellor NSHE
Krmpotic, Mark Legislative Counsel Bureau
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Appendix A
Individuals Interviewed
Name Title Organization
Lange, Carol Interim Vice President Academic
and Student Affairs
Western Nevada College
Leavitt, James Dean Regent NSHE
Lucey, Carol President Western Nevada College
Mahlberg, Lynn Vice President Student Services Great Basin College
Maryanski, Fred President Nevada State College
McDaniel, Cleve Senior Vice President for
Finance
Desert Research Institute
McFarlane, Michael Vice President for Academic
Affairs
Great Basin College
Neal, Harry "Buster" Vice President for Business Nevada State College
Negrete, Sarah Faculty Senate President Great Basin College
Neverett, Dan Vice President Finance and
Administrative Services
Western Nevada College
Nichols, Jane Vice Chancellor, Academic &
Student Affairs
NSHE
Perkins, Richard President The Perkins Company
Quirk, Ted Counsel Greenberg Traurig
Raggio, William Senator Nevada Legislature
Rauls, Mark Faculty Senate Chair College of Southern Nevada
Rawson, Ray Regent NSHE
Raxter, Tracy Legislative Counsel Bureau
Redding, Victor Senior Fiscal Operations Officer NSHE
Reedy, Robin Chief of Staff Governor's Office
Reilly, Thom Former City Manager Clark County
Rice, John Patrick Director of Institutional
Advancement
Great Basin College
Richards, Michael President College of Southern Nevada
Richardson, James Professor University of Nevada Reno
Rogers, Jim Former Chancellor NSHE
Rowe, Russell Principal The Capitol Company
Salaber, Stephen Interim Assistant Vice President
and Controller
Desert Research Institute
Saltman, Michael President The Vista Group
Sanford, Delores Vice President, Finance and
Administration
Truckee Meadows Community
College
Schack, Louis Director of Communications Barrick Gold
Schneider, Michael Senator Nevada Legislature
Scott, Craig Senior Budget Analyst Truckee Meadows Community
College
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Appendix A
Individuals Interviewed
Name Title Organization
Sheehan, Maria President Truckee Meadows Community
College
Shively, Bruce Associate Vice President University of Nevada Reno
Sibert, Sonia Budget & Human Resources
Officer
Great Basin College
Smatresk, Neal President University of Nevada Las Vegas
Smith, Debbie Assemblywoman Nevada Legislature
Smith, Mark Vice President Nevada State Bank
Stevens, Mark Vice Chancellor Finance NSHE
Stewart, Lynn Assemblyman Nevada Legislature
Stuart, Spencer Director of Communications Nevada State College
Warwick, John Executive Director Desert Research Institute
Wells, Stephen President Desert Research Institute
Wixom, Mike Regent NSHE
Woodbury, Stacy Deputy Chief of Staff Governor's Office
Young, Lee Vice President for Enrollment
Management
Nevada State College
Zurek, Ronald Vice President Administration
and Finance
University of Nevada Reno